Digital meets physical: setting boundaries in the insurance industry
The very basic principle of insurance will remain the same but with the advent of data analytics and IoT, everything else about the industry will change. The direction and depth of change should not progress unchecked. It needs to be kept under debate.
In our recent thought leadership publication, Journey 2022: resolving digital dilemmas, we look at how the digital world and the physical world are coming together to present new dilemmas. The question “could we” will more often be accompanied by “should we” in the future. We are beginning to see some new technologies reach a tipping point at which they could begin to impact on society more widely.
This is highly relevant for the insurance industry where data is changing the business.
As we move forward, some questions need to be faced:
- What legislation and protections should be put in place for consumers?
- How much should the insurance industry know about an individual?
- What impact could the increase of data have on the industry and on society?
Data is a key driver for the industry to price, select and settle risks. Even in analogue days, an insurer would take as much information from you as possible about your assets, risks and viability for insurance. In the future, an insurer may not need to ask you anything. They could already know all they need to.
This brings positives and negatives.
The positive is that the emergence of IoT and explosion in data has produced a much closer relationship between customers and their insurers. Claims can be processed more efficiently on the back of information already available and submitting this information via an app on your phone makes the process swift and efficient for the customer and cost effective for the insurer.
The negative is around boundaries and data privacy and also the cybersecurity risk associated with data at the edge where there is far more exposure with open architecture. Any security or data protection issue will breach the trust of their customers.
The bigger question
However, a bigger question remains around how much an insurer should be allowed to know about you and how do you consent to the sharing of personal data. These issues are already revealing themselves in areas such as health insurance.
At the forefront of change
Some leading, cutting-edge healthcare insurers are already using wearables and data to offer their clients great discounts and premiums on health insurance. The healthier you are and the more you exercise, the lower your premium can be. This is great news to those of us enjoying a healthy lifestyle and it drives the right behaviours towards health and fitness – everyone wins.
But what if you delve a level deeper into the realm of predictive genomics? Do individuals become uninsurable based on their genetic predisposition?
Where are the boundaries on sharing individual data and who is in charge of setting them?
Ultimately, IoT will be capable of providing information on all the risks we bear. The consequence of this level of knowledge could render some people, organizations or initiatives un-insurable. This represents a huge risk for individuals and society.
Legislation will come into force to protect citizens whilst allowing for progress, but it will have to be carefully defined. Insurance companies need to work together with regulators to avoid this demutualization as it is at the foundation of our protection model.
Failure to set the right boundaries could mean making business decisions that, in turn, could have a catastrophic impact on companies and society.