As winter approached, I took to the web, to find the ideal skiing vacation. As I went to book a great deal I’d found in Austria, I was offered additional protection against poor snow conditions. The user experience and the price were so great that I decided to purchase the insurance – something I would never have done in the past.
What has changed, apart from increased awareness of global warming, is the rise of digital insurability.
Access to a new breadth of data and digital technologies is pushing back the boundaries of insurability.
This is now a fantastic opportunity for incumbent insurers to transform their product portfolio into transparent, simple and personalized value propositions. IoT technologies applied to motor or home insurance are enabling better pricing conditions, increased protection and lower cost of claims. In parallel, real-time digital platforms are providing insurance-on-demand capabilities to protect the camera or kitchen appliance you just bought.
Digital insurance will also have a wider impact at an economic and society level. Parametric or index-based insurance will expand insurability for farmers living in emerging markets by protecting them, in a seamless way, against natural hazard.
The dark side of digital
But positive things always come with a dark side. Digital Insurance is raising huge concerns in terms of protecting data managed by IoT devices against cyber-attacks. There are also some major concerns about privacy of information as Digital meets Physical. The technology can be seen as invasive as personalized cover can require information such as geo localization, online purchase habits or health conditions.
With increased collection of data across multiple IoT devices, the risk of data breach has never been as high as today. Such concern is critical for insurance companies as trust is at the core of their business model where you are paying money upfront for future claims.
The cyber insurance opportunity
The rising frequency and size of cyber-attacks can have severe consequences on financial stability and economic development. Innovative cybersecurity solutions will not be able to protect fully against this risk.
This is where insurers can play a critical role by providing cyber insurance and cover substantial risks leveraging on reinsurance programs
This market is in its infancy but booming - According to Munich Re, the size of the cyber insurance market is expected to increase by two-fold and reach $ 8-9 billion by 2020.
Digital insurability dilemmas
As explained in Journey 2022, the expansion of insurability is raising concerns as the “art of possible” with digital technologies must be confronted with “the art of permissible”.
With access to data that are more and more granular, insurers are able to provide cost that are fully personalized, depending on your current health condition and behavior. Take the example of Oscar in the US, the #1 funded insurtech, providing a reduction in your premium as long as you can demonstrate you’re keeping yourself fit. This is great when you are fit, and you enjoy sports but what if you suffer from a chronic disease and prefer sports on TV?
“This is called demutualization and it is at the opposite of the Insurance principles”
As the digital society is rising, the deep nature of insurance protection will change. More personalized, integrated and flexible products will be the norm. In this transformation journey, the success will only come if digital dilemmas are resolved through corporate social responsibility, state-of-the-art cybersecurity standards and close cooperation with the regulators.