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By Phil Dodridge
Head of Business Intelligence and Disruption

Insurance is being turned on its head, as technology opens up a world of possibilities to improve service and meet customers’ changing risk needs.

The risk profiles and business models of companies large and small are changing rapidly, while customer expectations are rising in the digital age. These are big challenges for the traditional insurance model, which increasingly looks dated.

Businesses understand the importance of protecting physical assets but today’s concerns are focused on intangible assets, such as brand and reputation and growing dependency on supply chains and critical systems. Such risks are by their nature more complex and difficult to mitigate - only four of the top 10 business risks in Aon’s 2017 Global Risk Management were insurable.

While the risk environment is changing at a pace, so are the capabilities and demands of business. With increased access to data and better risk management, commercial insurance buyers are growing more sophisticated. Customers want more tailored products, and expect a much faster and efficient service from their insurance industry partners.  If insurers are to remain relevant and help their customers adapt to the changing risk landscape, they will need to completely rethink their offering.

Unlocking insurance

Technology will be the key to transforming insurance.

A total of US$2.3bn was invested in Insurtech in 2017 - the second highest total of any year to date - while the first quarter of 2018 resulted in a record 66 Insurtech transactions, according to Willis Towers Watson. QBE Ventures, QBE’s Insurtech fund, has made a number of investments since it was established in 2017, including a recent partnership with underwriting risk analytics firm Cytora. It has also invested in HyperScience, which uses AI to automate administrative and skilled tasks, and a partnership with RiskGenius, a machine learning platform for analysing policy wordings.

Technology will bring about improvements in three key areas - service, underwriting and claims. Greater automation and data will enable insurers to drastically improve service levels and address customers’ changing risk needs.

Total risk proposition

Many of the key risks faced by organisations today require a more holistic approach. To this end, insurers are increasingly working with risk advisers, consultants and technology firms on broader solutions that address customers’ risks, rather than just offer an insurance contract.

For example, QBE has partnered with specialist legal, risk management and crisis management consultancies to help mid-sized life sciences clients better understand and manage their risks. In cyber insurance, insurers provide access to services that help clients control the risk (such as training and advice), while insurance and crisis management services will limit the impact of an incident should the worst happen.

Increased access to data will also offer exciting opportunities for insurers to build an integrated risk management product, often in partnership with customers and third parties. Wearable devices, for example, offer a host of possibilities to monitor key health and safety indicators, as well as influence behaviour and improve risk.

Insurance is about to be turned on its head.   We will increasingly offer services and provide a total risk proposition, in which insurance forms part of a bigger package.

Data driven decisions

Data is the lynchpin in the transformation of insurance. By combining data (both open source and proprietary data from insurers and customers) it will be possible to make more informed decisions on risk. For insurers and their customers this will mean the optimal use of risk capital, more risk reflective pricing and the ability to give risk mitigation advice.

QBE’s partnership with Cytora includes the Cytora Risk Engine, which uses machine learning to combine QBE’s internal data with open source data, giving insights into expected claims activity at a portfolio and individual risk level. QBE is also text mining unstructured data from nearly 20 million documents to help fraud detection, claims triage and recoveries.

Up until now, insurance has been an annual process. With real-time or regular access to data, insurers will be able to price risks on an individual basis that reflect the true exposure at any point in time – for example, a ship in dock poses a different risk to one at sea, or transiting a busy shipping lane or war zone. Data and technology will also enable insurers to offer cover and services on a pay-as-you-use basis, in much the same way as telematics has already made pay-as-you-drive insurance a popular choice in the motor market.

The ability to manage more granular data – with increased use of IoT and cloud services – coupled with machine learning will lead to more informed decisions and accurate pricing of risk.

Tailored and efficient service

Commercial insurance is often complex and resource intensive for both insurer and customer. Technology, however, will enable insurers to greatly improve service standards, while at the same time reduce frictional costs and free up people to focus on preventing and managing risk.

QBE is increasingly using robotics (powered by AI and data analytics) to support automation and speed up the insurance process, from quotes through to claims. Digital technology will also help insurers become more responsive and customer-focused. For example, commercial customers will be able to engage with insurers via a wide range of portals and apps, which will give real time access to information on risk, policies and claims, as well as immediate responses to queries and requests.

Ultimately, technology could remove much of the burden of arranging and managing commercial insurance programmes. Although early days, solutions are emerging that could do away with the annual renewal, where insurance is highly automated, responding quickly and constantly to changes in underlying risk and customer needs.

Smart claims

One area where technology is already having an impact is in claims. Automation and data analytics are helping turn claims handling services into a more streamlined, less time-consuming process. According to McKinsey, 25% of full-time insurance positions could be automated over the next decade.

QBE deploys robots to automate an increasing number of claims handling processes. For example, robots are being used to process payments to suppliers, while thousands of low value claims are now fully automated, freeing up claims handlers to focus on value added services for customers. A single robot in QBE’s claims team automates around 1,000 claims payments per month. Over 85% of transactions are now processed without human intervention.

“Robots are now able to set up an insurance claim, authorising the claims payment against a clear set of rules. If it falls outside of those rules the claim is escalated to a human,” explains Mike East, Claims Director at QBE Europe.

Automated claims services can also be linked to data and other technologies, like IoT, Blockchain or smart contracts. In the pipeline are smart insurance solutions that can automatically pay claims based on real time data, as well as triggering services to mitigate the risk. For example, a shipping container fitted with sensors might report damage to its contents mid-way through a voyage, triggering a claim payment and reordering the shipment to mitigate damage to the supply chain.

Technology will also make the claims process more transparent, improving communication with brokers and policyholders. More open communication will enable insurers to incorporate customers’ feedback into the claims process and capture their preferences. For example, QBE is piloting a webchat tool to communicate with policyholders to increase the efficiency of this exchange of information during settlement.

“We are now providing key major clients with feedback on claims experience. Clients have told us it really adds value for them, as they actually get data and information about which locations are having the most claims, what types of claims they are, what types of vehicles are the most effective in a book of motor insurance,” says East.

Innovation is key to staying relevant

The traditional underwriting model, based around the insurance contract, has been an essential risk mitigation tool for hundreds of years. It is still valid today and always will be valid. But that is not to say that the insurance proposition cannot be improved. Insurers recognise the need to keep pace with the times and are investing in new technologies and partnerships as they look to address customers’ changing risks and service expectations.

These are exciting times for insurance. Our business model will have to change so that we continue to be relevant, placing more emphasis on risk prevention and consequently less focus on just risk transfer. Our customers expect this of us and I am positive that we will deliver.