Swiss Re highlights future of data-driven insurance

The role of insurance is evolving from indemnification of losses to a broader consultative service on risk prevention and mitigation, covering both private and commercial clients’ changing needs over time. This is according to the latest sigma report from Swiss Re: Data-driven insurance: ready for the next frontier? “Digital transformation empowers consumers to be more informed and independent than ever before, and equips insurers with the tools to cater to customers’ current and future needs. This leads to the development of new data-driven business models, impacting the entire insurance value chain,” the report states. It points out that risk exposures “can be tracked and modelled more easily so that insurers can more confidently decouple coverage elements within existing monolithic products”. While commercial risks are more complex and do not change as frequently, digitalisation “can help in coverage recoupling across products to reduce protection gaps and achieve price efficiencies”. The report adds: “In this dynamic environment, product lifecycles will get shorter and speed to market will be crucial.” It also notes that some innovative products for new risk pools are emerging with granular data collection and analysis enabled by digitalisation. “For example, we see first solutions emerging for personal cyber, use of cryptocurrency exchanges, or IoT infrastructure risks. Better data quality also facilitates construction of new risk indices and parametric products, such as covers to protect against economic impacts of infectious disease outbreaks. These use pathogen sentiment indices from digital sources to gauge public fear and behavioural changes to measure the cost of epidemics. In the future, we think algorithmic risk products will become mainstream, with assets and processes becoming more autonomous and intelligent,” says Swiss Re. It adds that in commercial lines, insurers could partner with providers of technology to monitor industrial assets to improve efficiency, safety and early warnings. While there are many benefits of digitalisation for SMEs and mid-corporates, large corporate risks require bespoke solutions and critical underwriting information for such risks is not yet sufficiently digitalised, the report notes. “As such, the underwriting approach is more case-based. Digitalisation of geospatial information has assisted large corporate underwriting to some extent. For example, insurtechs provide property risk engineering solutions to insurers, especially to assess natural hazards. In another case, cargo sensor data can be used to provide enhanced marine coverage. Remote risk inspection can be enabled by allowing risk engineers to transmit live feeds to underwriters,” it states. And it adds: “The full value of digitalisation in dynamic pricing will only be realised when live data from industrial control systems and facility monitoring systems is integrated with underwriting systems.” Commenting on the report, Jeffrey Bohn, chief research and innovation officer at Swiss Re Institute, said: “As a result of digitalisation, insurers now have direct connection to their customers. With the availability of granular data, insurers can better segment customers, enabling them to develop new tailored products and services, and refine existing ones in real time. This benefits customers and insurers alike.” The report concludes: “More and more, insurers will operate in an environment where they have continuous access to different data sources including from connected objects and platform providers, and behavioural insights from consumer and environmental data. This will see the evolution of new data-driven business models taking insurers beyond their existing value chain. True leverage will come from partnerships with key data suppliers.” Thierry Léger, chief executive officer of Swiss Re Life Capital, commented: “Innovation will continue to transform the insurance industry. Changing risk environments, shifts in customer attitudes and accelerating advances in technology will be the key drivers of the next few years. We will need to leverage insights from our data and partnerships to upgrade our business practices.”

Swiss Re highlights future of data-driven insurance

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