The Future
of General
Insurance 2016
A special report
Sponsored by:In association with:
Innovation, InsurTech, the Internet of Things,
the connected home/car, the sharing economy,
blockchain, cyber, reputationa...
The Future of General Insurance 20164
Contents
01:	 Innovation and disruption
02:	 Brexit: jury still out
03:	 Value-added...
01: Innovation 	
and disruption
Disrupt. Adapt. Repeat.
Those three words capture the new reality
facing all organisations...
The Future of General Insurance 20166
For insurance companies, better known for their
prudence and resilience, and finding...
A special report 7
2016 33%
2015 59%
This feverish activity has infected incumbents: our
survey finds insurance organisati...
The Future of General Insurance 20168
Our respondents may say they have an appetite for radical innovation but this is not...
A special report 9
Legacy systems,
legacy thinking
Partnership
potential
Of course the biggest barrier
to innovation remai...
The Future of General Insurance 201610
This innovation gap must be closed –
and quickly. The clock is already ticking:
73 ...
A special report 11
Our survey reveals, however, that the vast majority
of insurers have made little headway in delivering...
The Future of General Insurance 201612
It’s a fascinating time to be working in the General Insurance industry.There are o...
02: Brexit:
jury still out
The UK referendum on the country’s membership
of the European Union dominated headlines around
...
The Future of General Insurance 201614
Ahead of the vote, the insurance industry, like
most of the City, was firmly in the...
A special report 15
9	 Brexit: the insurers speak Kennedys, 2016
10	 City AM, September 2016
Insurers on the move?
Automat...
The Future of General Insurance 201616
86% believe there will be little 	
or no difference between the UK’s
insurance regu...
03: Value-added
and data-driven
services: the
next big thing?
The emergence of a hyper-connected world
has profound implic...
The Future of General Insurance 201618
The physical spaces in which we live and work will become “intelligent”, as our car...
A special report 19
27%
in two years
22%
currently
53%
in five years
Those planning to stay in the race have a lot of grou...
The Future of General Insurance 201620
For many insurers, however,
it is not just the scale of the
investment but the comp...
A special report 21
Our respondents certainly see an appetite for risk
management guidance as well as lower premiums,
and ...
The Future of General Insurance 201622
Insurers need to capitalise on consumer willingness to share
data in return for eng...
04: Pricing and
the Internet
of Things
Trajectories for IoT growth vary widely
depending on how analysts define a connecte...
The Future of General Insurance 201624
Whichever growth trajectory is followed, one thing is clear: a vision of a
hyper-co...
A special report 25
Despite the benefits, as matters stand uptake
of insurance telematics remains low: after
all, there ar...
The Future of General Insurance 201626
There is also the potential for insurers
to use data from smart buildings to help
p...
A special report 27
Benchmarking of driving behaviour, gamification
of fitness goals or updates on pet health risks can
em...
05: Artificial
intelligence:
an operational
game-changer?
90 years ago, Konrad Zuse invented the first
programmable comput...
A special report 29
This doesn’t mean customers will be interacting with
C-3PO in the future; in the digital era, robots d...
The Future of General Insurance 201630
However, the robotics revolution is much more
profound than expedited back office p...
A special report 31
Already there is widespread confidence in one real-world use case for AI: 69 per cent agree that machi...
The Future of General Insurance 201632
Among our respondents, 31 per cent foresee their organisations
deploying AI-powered...
A special report 33
By applying deep learning to vast reams of IoT data,
unstructured text, call centre voice recordings a...
06: Blockchain:
insurance
rebooted
Of all the disruptions to financial services
accelerating down the pipe, blockchain cou...
A special report 35
A blockchain is a digital ledger of transactions, agreements and
contracts.This ledger doesn’t sit in ...
The Future of General Insurance 201636
While banking looks set to bear the full force of
blockchain disruption, the insura...
A special report 37
Recording details of claims on a blockchain also
offers the potential to ensure only valid claims are
...
The Future of General Insurance 201638
Blockchain is also expected to be used to earn customer trust around the use of per...
07: The ongoing
battle against
insurance fraud
Insurance fraud is a persistent and pernicious
undercurrent that continues ...
The Future of General Insurance 201640
No industry could afford to ignore this level of sustained fraud.
Insurance compani...
A special report 41
Yet our survey shows, despite the industry’s
ongoing commitment, insurance fraud remains
a real and pr...
The Future of General Insurance 201642
Insurers are clear that identity fraud opens the door to
wide-scale insurance fraud...
A special report 43
Insurers are, however, losing patience with this sustained
erosion of margins through low-level fraudu...
The Future of General Insurance 201644
95% agree the single most effective way to tackle professionally enabled
fraud woul...
A special report 45
27%
expect to access data from
smart home devices
13%
from wearable devices
15%
from drones
Yet our su...
The Future of General Insurance 201646
The results of this research show strong parallels with what the members of the Nat...
08: Conclusion
Disrupt. Adapt. Repeat.
We started this report pointing out that today’s
insurance company must be able to ...
The Future of General Insurance 201648
The one constant for the insurance industry must be the customer.
Staying relevant ...
A special report 49
Methodology
This report is based on research conducted by Marketforce Business
Media and the CII in Au...
The Future of General Insurance 201650
Marketforce, the business media company, mobilises knowledge through the creation o...
Marketforce - Te Future of general insurance 2016
Marketforce - Te Future of general insurance 2016
Marketforce - Te Future of general insurance 2016
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Marketforce - Te Future of general insurance 2016

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Innovation, InsurTech, the Internet of Things,
the connected home/car, the sharing economy, blockchain, cyber, reputational loss - these are the buzzwords of the moment and sum up the challenges facing the insurance market. How can a traditional, process-orientated and legacy-bound industry embrace new technology, new ways of thinking, and
a truly customer-focused, customer-driven approach? How can it attract and retain innovative staff that think differently and are not by their very nature process-focused?

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Marketforce - Te Future of general insurance 2016

  1. 1. The Future of General Insurance 2016 A special report Sponsored by:In association with:
  2. 2. Innovation, InsurTech, the Internet of Things, the connected home/car, the sharing economy, blockchain, cyber, reputational loss - these are the buzzwords of the moment and sum up the challenges facing the insurance market. How can a traditional, process-orientated and legacy-bound industry embrace new technology, new ways of thinking, and a truly customer-focused, customer-driven approach? How can it attract and retain innovative staff that think differently and are not by their very nature process-focused? Too often insurers – and brokers – have managed to attract talent from other retail-orientated businesses only to lose them quite quickly as the cultures clash. This culture clash must be overcome or got around. Bolt-on start-ups are one approach; partnering with others is another; but these are all a short-term fix for a longer-term issue.The brave new world is here, right now, and throwing up opportunities for insurance to demonstrate its value to customers – in both personal and commercial lines – embracing on-demand, lifestyle solutions and new emerging risks.And an opportunity to be more transparent with customers to explain how insurance works – both key to improving customer trust in the insurance profession. These opportunities are just some of the reasons why the Chartered Insurance Institute is delighted to support this research into the challenges facing the insurance community as it looks to ensure it remains relevant to the changing needs of a changing society. I hope the information in this report will encourage everyone across the profession, from junior staff to established industry leaders, to invest in understanding the changing landscape and to identify the additional skills and knowledge they will need in order to meet changing customer needs. Ant Gould Director of Faculties The Chartered Insurance Institute Twelve months ago we reported on an industry taking hesitant steps towards its digital future. Now, as we again take the pulse of the insurance industry, we find that its pace has quickened, fired by the adrenalin shot of competition from start-ups that are now so numerous and well- capitalised that they count as a fully-fledged subset of FinTech with their own moniker, InsurTech. This increasingly credible competitive threat is expected to unleash Uber-style disruption on a sector that, still caught in a perfect storm of soft rates, low investment yields, new regulation and now the uncertainty of a Brexit vote, has been too cautious in its approach to innovation. Our survey finds, however, an industry with a growing appetite for innovation and a window of opportunity in which to leverage data flows from the Internet of Things combined with the power of artificial intelligence and the security of blockchain to deliver its own game-changing disruption. Yet as InsurTech continues to absorb capital and talent, there’s a growing question mark over the ability of incumbents to seize this opportunity. There is a shortcut: collaboration and partnership with FinTech innovators is accelerating innovation within banking, fuelling user-friendly disruption and encouraging a new generation to engage with their banks. Insurance companies need to show increased readiness to partner with challengers in order to accelerate their own digital transformation. There is no alternative: insurers must re-invent themselves for the digital age before a challenger forces an Uber-style disruption on them. And as our survey makes clear, the industry’s Uber moment may be less than five years away. The clock is ticking...innovate or die. Juliet Knight Director, Marketforce Forewords
  3. 3. The Future of General Insurance 20164 Contents 01: Innovation and disruption 02: Brexit: jury still out 03: Value-added and data-driven services: the next big thing? 06: Blockchain: insurance rebooted 04: Pricing and the Internet of Things 07: The ongoing battle against insurance fraud 05: Artificial intelligence: an operational game-changer? 08: Conclusions 5 28 17 39 13 34 23 47
  4. 4. 01: Innovation and disruption Disrupt. Adapt. Repeat. Those three words capture the new reality facing all organisations in the digital era. And that reality is a dizzying cycle of disruption and adjustment, accelerated by vast sums of capital and an insatiable consumer appetite for smart solutions and snazzy gizmos. Sponsored by:
  5. 5. The Future of General Insurance 20166 For insurance companies, better known for their prudence and resilience, and finding their centuries of experience and infrastructure as much an encumbrance as a strength, this serial disruption represents both a significant challenge and an unmatched opportunity.The World Insurance Report 20161 suggests fast adoption of Internet of Things (IoT) technologies by affluent Gen Y and Gen X consumers will transform the industry by giving insurers unprecedented insight into real- time behaviours to reduce risk and stem losses.Yet, the insurer of the future may not be an incumbent big name but a data-savvy newbie with a rapid innovation cycle and brand smart appeal. This threat cannot be underestimated: influential Gen Y customers, those born between 1981 and 2000 and now representing more than 25 per cent of the global population, have a natural affinity with brand-savvy digital leaders with propositions that excite and engage, while low-fee, peer-to-peer models strike a chord with a generation hit hard by the financial crisis. Survey after survey shows a greater willingness among Gen Y customers to consider propositions from the likes of Google, Apple and Amazon than their existing financial services providers2 .Those insurers that fail to keep pace with the personalised, one-touch mobile solutions expected by Gen Y will increasingly lose ground to those that do. And there is no shortage of competition. Not only are major players launching their own digital offers but there has been a vast surge of investment in FinTech businesses with an insurance angle, the must-talked- about InsurTechs. And while the sums invested are still dwarfed by the billions being splurged across FinTech as a whole3 , the growth of InsurTech investment is eye-watering, up from US$800 million in 2014 to US$2.6 billion in 2015. The first half of 2016 saw funding to insurance tech start-ups top US$1 billion with deal volume on track to smash 2015 levels4 . 1 The World Insurance Report 2016, Capgemini/Efma 2 The Millennial Disruption Index by Viacom subsidiary Scratch makes bleak reading for incumbent financial services players. 3 Investors around the world poured US$22.3 billion into FinTech deals in 2015. Source:Accenture, 2016 4 Insurance Tech Insights, CB Insights, July 2016 01: Innovation and disruption
  6. 6. A special report 7 2016 33% 2015 59% This feverish activity has infected incumbents: our survey finds insurance organisations are hungry for new ideas, with 77 per cent believing the industry’s appetite for radical innovation has increased over the last 12 months. This is no empty ambition: major players are making substantial investments in InsurTech, completing almost 20 investment transactions in Q1 2016, more than twice as many as in Q1 2015.And not only are the likes of Aviva,AXA,Allianz,AIG and MetLife building stakes in start-ups but they are also building their own innovation labs, a model already used by the banks to incubate radical new ideas and foster experimentation without putting the core business at risk. As InsurTech continues to suck in dollars and top talent, incumbents feel increasingly glum about the prospect of disruption from within the industry. In 2015 almost six out of ten thought an existing major player was most likely to disrupt the market with a new product or service5 .Twelve months on we find this confidence has ebbed: just over three out of ten insurers now expect disruptive innovation to stem from among their ranks. InsurTech: primed to disrupt 77% believe the industry’s appetite for radical innovation has increased over the last 12 months. In 2016 33% expect an existing major player to disrupt the market with a new product or service...down from 59% in 2015. 5 The Future of General Insurance 2015, Marketforce/CII 77% believe it has increased 21% believe it hasn’t change 2% believe it has decreased The industry’s appetite for innovation
  7. 7. The Future of General Insurance 20168 Our respondents may say they have an appetite for radical innovation but this is not yet evident in how they think about risk, manage their resources and lead their people. Innovation trailblazers, such as Google, Amazon and Uber, work differently and think differently to ensure bold ideas have the resources and breathing space to make the difficult transition from beta pilot to fully-fledged commercial operation. Markers of innovation include: empowering highly motivated multidisciplinary teams (Google); green-lighting fast launch and continuous iteration to build in customer feedback (Google); a willingness to think big, to obsess about the customer experience and a high tolerance of failure in pursuit of excellence (Amazon and Apple). Prepared for innovation? 36% expect InsurTech start-ups to disrupt the market with a new product or service While one-fifth of our respondents believe Google’s data capabilities, financial muscle and web ubiquity make it the most likely contender to disrupt the insurance market, it is clear that the past 12 months has seen the odds shift in favour of the InsurTech challengers. Over a third now see InsurTech start-ups as the most likely initiators of major disruption, suggesting the huge sums invested in InsurTech in recent years are starting to yield prospects with game-changer potential. These start-ups are driving a fundamental rethink of the centuries-old insurance model. Our respondents are clear that ideas pioneered by start-ups are set to be mainstream by 2021: 65 per cent believe that on-demand insurance for specific personal possessions will be a seriously successful competitive force within five years; 57 per cent believe insurance will become part of a wider package of digitally-enabled value-added services; and 56 per cent expect to see pay-as-you-go insurance replacing the annual renewal. Eight out of ten think it’s likely that digitally- enabled new entrants will gain market share through differentiation on factors other than price only 38% while 66% are suffering from a lack of innovation skills of insurance organisations have a Head of Innovation Indeed, eight out of ten of our respondents think it’s likely that digitally- enabled new entrants will gain market share through differentiation on factors other than price.This is both an opportunity for incumbents – providing a route to more sustainable premiums – and a challenge: those who cannot deliver a new model that adds real value to the customer will lose market share to those who can.
  8. 8. A special report 9 Legacy systems, legacy thinking Partnership potential Of course the biggest barrier to innovation remains legacy IT, with the inflexibility of existing systems cited as a significant impairment to innovation by 81 per cent of our respondents, up from 63 per cent in 2015. These systems not only detract from the customer experience but also hinder the speed and agility that are hallmarks of a “fail fast, fail often” rapid innovation cycle. More subtly but just as importantly, legacy systems, with data held in disparate silos, influence how organisations think and act, with people unable to crash through barriers of product or function to create something new and radical: two-thirds of our respondents believe legacy thinking is a major issue for incumbent insurance players. Yet our findings suggest too many insurers lack the leadership, skills and attitude to nurture true innovation: just 38 per cent of organisations surveyed currently have a Head of Innovation and, worryingly, more than half (51 per cent) have no immediate plans to make such an appointment, with these findings showing no improvement on 2015 figures.This lack of urgency could cost dearly, undermining efforts to attract the skills and change attitudes in order to drive through the innovation agenda: 66 per cent cited a lack of innovation skills and 60 per cent identified a fear of innovation risk as being significant impediments to innovation. This is a major concern as increasingly well-funded and credible InsurTech start-ups attract top talent from incumbents.This year, for example, Next Insurance, offering an online, transparent experience for small businesses, signed Lacey Pavey, formerly Chief Underwriting Officer at the financial institutions division of AIG, while Lemonade, the P2P insurance carrier, has signed senior executives from AIG and ACE. There is no doubt that well-backed start-ups, freed from the constraints of legacy systems, represent a real threat to incumbents. Yet they also represent an opportunity: they are rich in ideas, brand smarts and agile ways of working that insurers so desperately need to deliver the innovation agenda, particularly as many are focused on helping incumbents improve their operations rather than on stealing their business. And this is not a one-way street: start-ups not only have a voracious appetite for capital but are also poor in ways that incumbents often take for granted: greater financial clout, regulatory know-how and established distribution channels. Little wonder that across FinTech the trend is towards collaboration and co-operation, with big names in banking setting up their own innovation hubs, partnerships and VC funds to ensure they have front line exposure to these crucibles of innovation. Yet our survey finds too many insurers remain reticent about this kind of cross-fertilisation. Only one-quarter of our respondents currently has a partnership with an InsurTech innovator to create a new insurance-related offering and another 14 per cent plan to have this relationship in place by 2018. This leaves more than six out of ten (61 per cent) with no plans to establish a partnership with the very type of organisation that is predicted to instigate major disruption in the insurance market.
  9. 9. The Future of General Insurance 201610 This innovation gap must be closed – and quickly. The clock is already ticking: 73 per cent of our respondents believe the industry will experience an “Uber moment” within the next five years.This is, of course, a reference to the global phenomenon that is Uber, the logistics app that matches passengers to vehicles and has proved devastating to incumbent taxi services in every market in which it has launched. An “Uber moment” has come to mean a one-in-a-hundred disruption event, and a number of industries are on high alert: Antony Jenkins, the former CEO of Barclays, believes banks are approaching an “Uber moment” as pressure from tech-savvy new entrants forces automation, halving the number of branches and staff in the coming years. Get ready for “Uberisation” 73% believe the industry will experience an “Uber moment” within the next five years Insurance and the sharing economy In its purest sense “Uberisation” is the transition to an operational model that enables economic agents to exchange underutilised capacity with close to zero transaction cost. The hotel industry, for example, has been “Uberised” by online marketplace Airbnb, which enables people to list, find and rent places to stay and already boasts the same number of rooms as Hilton Hotels has amassed in over 90 years in business. In a similar vein, Nimber matches delivery requests with people going in the same direction, bypassing traditional delivery companies, while JustPark lets people rent out their drives to those seeking parking spaces. The closest the insurance industry has seen to this model is the emergence of P2P insurance, whereby people form groups online to share insurance. Guevara, for example launched in the UK in July 2014 and is a broker that pools friends and trusted acquaintances or adds users to existing groups of five or more for car insurance. Premiums from those members go toward covering the group, with future discounts given to those with low claims. US start-up Lemonade, meanwhile, is the first P2P insurance carrier and has attracted $13m in seed capital from Sequoia Capital for an offering based on small groups of policyholders that pay premiums into a claims pool. If there’s money left in the pool at the end of the policy period, members get a refund. 67% agree that providing specific insurance for the sharing economy will be one of the largest growth markets for insurers in the next five years.
  10. 10. A special report 11 Our survey reveals, however, that the vast majority of insurers have made little headway in delivering solutions for the sharing economy: just 10 per cent already have an offer in the marketplace and another 35 per cent are only at the pilot or strategy stage. Over half (55 per cent) have taken no steps towards meeting these new insurance needs, potentially missing out on a significant new line of business as the sharing economy sector rapidly scales, from a market worth US$15 billion in 2015 to US$335 billion by 20256 .This point is not lost on our respondents: two-thirds agree that providing specific insurance for the sharing economy will be one of the largest growth areas for insurers in the next five years. Insurers will need to pair with sharing economy trailblazers in order to get a foothold in this fast- growing market.Three-quarters of our cohort do not expect sharing economy insurance products to be distributed through traditional channels, and 86 per cent agree that insurers will be unable to accurately price shared economy risks unless they partner with matching platforms.Yet, as we have already seen, this is an industry that has been slow to collaborate with newcomers – a reticence that could cost dear as digital transformation continues to upend tried and tested business models. While the jury is still out on how successful the P2P insurance model will become, there is no doubt that the growth of the sharing economy in any case has major implications for insurers, who must accommodate the needs created by this accelerating social trend with flexible, often on-demand insurance solutions.Traditional insurance policies do not cover the kind of mixed use of assets by different users that the sharing economy entails but a number of insurers are now offering specifically designed solutions.Admiral, for example, has a Head of Sharing Economy and is building out its proposition, already offering comprehensive motor insurance to members of peer-to-peer car rental service EasyCar Club and including specific cover on its policies to give peace of mind to anyone who wants to list on Airbnb. Unsurprisingly, a group of disruptive start-ups is also emerging in the area – look out for Slice Labs, Bungalow, Guild, Peers and, winner of Insurance Start-up of the Year at The British Insurance Awards 2016, Safeshare Global. The insurance industry’s Uber has yet to emerge - but it is coming. Worryingly, it is evident from our findings that incumbent players are far from ready for Uber-scale disruption. 86% believe insurers will need to partner with a sharing economy platform to accurately price risk75% believe sharing economy insurance products will not be distributed through traditional channels 6 Figures from SafeShare Global, 2015
  11. 11. The Future of General Insurance 201612 It’s a fascinating time to be working in the General Insurance industry.There are over 40 InsurTech companies looking to disrupt the UK insurance market according to recent Altus research and with over £30 billion of GWP to go after, there’s plenty on offer for them. The key to success for these disruptors will be to offer a genuinely different experience for the consumer.There is no need to fundamentally reinvent the insurance product - people will always need protection from an evolving set of risks. But there is a need to engage more with our customers and better understand their needs. Despite the hype, Uber and Airbnb have not revolutionised the product on offer in their sectors - the consumer still gets from A to B or a bed to sleep in. Connectivity to the supplier of the product has changed, but it’s the way they engage with their customers that is the more compelling in this value-chain.Whilst the Internet of Things (IoT), autonomous vehicles, blockchain and drones will have a role to play, perhaps it’s simply the smart phone that is the most fundamental driver for disruption in the insurance chain? Legacy technology is a huge threat to incumbent players but with the majority of top 20 UK insurers (based on overall GWP) having already moved to new technology or about to, it is a threat that is being taken seriously. However, technology is not the only piece in the jigsaw.The complexity behind legacy products, processes and operating models will continue to prevent all but the most determined big brand insurers from building a truly agile business. The large insurance providers do have an opportunity to be part of this disruption but need to be innovative. And brave. In 2 years’ time, I wonder how much premium will have been captured by new entrants. Is 1%, or £300 million enough to truly wake up the insurance market? Altus Consulting viewpoint Innovation and Disruption – is 1% enough? Altus Consulting is a specialist provider of consultancy services to the Financial Services sector.We help clients achieve operational excellence and improved returns via a combination of proven industry models, technology expertise and market insight. For more information please contact: Mark Andrews Domain Director – General Insurance Altus Consulting M: 07789 566 899 E: mark.andrews@altus.co.uk altus.co.uk/consulting
  12. 12. 02: Brexit: jury still out The UK referendum on the country’s membership of the European Union dominated headlines around the world. The debate ahead of the plebiscite was ferocious, the two sides increasingly divided by ever more alarmist and unpleasant rhetoric. The result was decisive when it came on 24th June, with 52 per cent voting to leave the EU after 40 years of membership. The following months saw political upheaval, turmoil on the stock markets and a major drop in the value of sterling. Yet as the dust started to settle, many indices of consumer confidence and manufacturing productivity confounded the dire expectations that a vote for “Brexit” would be to invite economic Armageddon.
  13. 13. The Future of General Insurance 201614 Ahead of the vote, the insurance industry, like most of the City, was firmly in the “remain” camp: one survey suggested 64 per cent of insurance executives supported staying in the EU7 .There were dire warnings, from Lloyd’s of London, from major players and from analysts that Brexit would weaken the UK’s centuries-long reputation as a global insurance hub. The UK insurance industry has real international clout, and its membership of the EU contributes to this.The UK has the largest insurance and long-term savings industry in the EU and London is ranked second in the world as a hub for international insurance, with 40 per cent of the UK’s total financial services exported to the EU. Lloyd’s of London estimates that the London insurance market is able to write insurance and reinsurance from all 28 member states to the tune of £6 billion worth of premium income8 . It’s a massive prize to put at risk by exiting the EU and explains why a conservative industry would back a vote for the status quo. Yet, while still weighing the implications of life outside the EU, the post- referendum industry is far from gloom-ridden. Indeed, our survey finds 10 per cent believe Brexit could prove slightly positive for their organisation’s profitability with a further 47 per cent predicting no change. There is no room for complacency, however, with a sizable minority (35 per cent) worried about future profitability in the wake of the UK’s exit from the EU. 7 Survey by Insurance Day, February 2016 8 Statistics cited in Brexit: the insurers speak, Kennedys, 2016 02: Brexit: jury still out Almost six out of ten think Brexit will have no impact or even be slightly positive for their organisation
  14. 14. A special report 15 9 Brexit: the insurers speak Kennedys, 2016 10 City AM, September 2016 Insurers on the move? Automation and digital transformation: sticking with the innovation agenda Ahead of the referendum, there were bleak warnings that London, the world leader in insurance, would see major attrition with mass job losses and a flight of capital as insurers backed their operations or exited the country entirely. One report suggested as many as 48,000 jobs in the London Market could be placed at risk in the next two years9 . The jury is still out on this Doomsday scenario: while 46 per cent of our respondents believe Brexit will prompt global insurers to move substantial parts of their operations out of the UK, when it comes to jobs relocating in their own organisation they are far more sanguine: 63 per cent do not expect to see any relocations while another 28 per cent expect the number of jobs moved out of the UK to measure just a “handful” or in the “tens”. Only seven per cent expect hundreds of jobs to go as a result of Brexit. There is no doubt that uncertainty weighs on investment decisions and inhibits growth as businesses seek to limit their exposure to the unknown.While this may not lead to the redundancies predicted ahead of the vote, it could well spur investment in cost-saving automation, thereby indirectly eliminating jobs in the sector: three-quarters of our respondents believe the uncertainty from Brexit will increase insurers’ appetite to invest in automation.This will, however, only accelerate a trend already underway across the world: for UK-based insurers, rapid adoption of a technology that delivers low cost, error-free and seamless back-office processing to allow increased focus on the customer experience could well deliver a competitive edge. This is not to downplay the risks associated with Brexit.While Theresa May has said the much discussed Article 50 will be triggered before the end of March 2017, there remains much uncertainty, particularly on access to the single market and free movement of people, both of which are pressing issues for insurers. Indeed, in September 2016, Lloyd’s of London boss John Nelson warned that Lloyd’s would quit the City if it was not given guarantees about its access to European markets and warned that prolonged uncertainty would force it to consider contingency plans10 . As the months pass and the referendum hysteria is tempered by more measured language and reasoned assessments, it seems the industry increasingly agrees with Mario Greco, CEO of Zurich, who in August said his business in the UK faced no risks following Brexit. None A handful Tens Hundreds Thousands The number of jobs that our respondents expect their organisation to move out of the UK due to Brexit
  15. 15. The Future of General Insurance 201616 86% believe there will be little or no difference between the UK’s insurance regulatory regime and that of its European neighbours in the three years following an EU exit Indeed, there are, as yet, few signs that the UK is about to lose its status as the world leader and become a parochial backwater. Our survey shows a sustained confidence in London’s ability to adapt to continue to thrive as a centre of FinTech innovation: 85 per cent of our respondents expect there to be little or no change to the UK’s attractiveness to InsurTech start-ups once it leaves the EU. Meanwhile the pace of digital transformation among UK insurers is expected to be unchanged according to 40 per cent, or may even speed up (25 per cent). 85% 65% expect little or no change to the UK’s attractiveness to InsurTech start-ups once it leaves the EU think the pace of digital transformation will stay the same or even quicken Regulation: here to stay Uncertainty continues And few expect Brexit to light a bonfire of regulation: indeed the majority of our respondants believe that the UK’s regulatory regime will not differ greatly from its European neighbours, following Brexit.This is despite the possible benefits of rethinking insurance regulation – two-thirds of our respondents believe it would boost the UK insurance industry to remove some of the onerous administration and implementation costs of Solvency II, for example. Continuity is widely expected as much EU-wide insurance regulation, notably Solvency II, was “designed in the UK” and as such UK regulators are unlikely to make significant changes, particularly considering UK insurers will need to abide by EU rules to maintain market access. At the time of writing, the Government is still locked in internal discussions about its Brexit goals and negotiations with world leaders are getting underway. Insurance companies will have to live with uncertainty for some time yet to come.
  16. 16. 03: Value-added and data-driven services: the next big thing? The emergence of a hyper-connected world has profound implications for how we live. We have grown used to leaving a digital footprint as we browse the web or use our phones and contactless cards to pay for goods and services. Yet these clickstreams and transaction details are blunt instruments compared to the minute-by-minute flows of highly intimate data that will be generated with the exponential growth of the Internet of Things (IoT).
  17. 17. The Future of General Insurance 201618 The physical spaces in which we live and work will become “intelligent”, as our cars, white goods, homes and even our clothes gain a voice.Wearable devices, smart contact lenses, even “tech tattoos” will allow our every move and physiological change to be measured and analysed, while a host of satellites will provide constant real-time coverage of our world. These technologies will transform the insurance industry, enabling early intervention to help policyholders manage and reduce their own risks, be it by adjusting risky behaviour, medicating soaring blood pressure or fixing overheating factory plants.This data-rich world has profound implications for insurance demand and premium income: some estimates suggest there could be a 20 to 40 per cent reduction in the level of risk in the insurable world in the next five years11 . Insurers will need to reboot their offers, not only to offset the fall in premium income but also to access valuable data streams that have the potential to finely calibrate pricing, improve claims handling, engage policyholders and cut fraud. Insurers have no automatic right to access flows of data from customers’ Fitbits, smart machines and connected cars; they must earn this right by offering customers incentives, be they financial, such as discounted premiums, or lifestyle enhancements the customer can’t live without. 11 Research from Swiss Re suggests that by 2020 over US$20 billion could be trimmed from annual premiums as a result of increased road safety enabled by automated car technology.The Future of Motor Insurance, 2016, Swiss Re/HERE White Paper 03: Value-added and data-driven services: the next big thing? 85% agree that value-added services and incentives based on data from connected devices will revolutionise non-price differentiation
  18. 18. A special report 19 27% in two years 22% currently 53% in five years Those planning to stay in the race have a lot of ground to cover, with existing data management and analytics capabilities clearly unfit for purpose: two-thirds of our respondents will need to make significant to massive investments in order to differentiate through personalised value-added services. And this call for funding will come at a time when insurers are already battling low margins, Brexit-related uncertainty and falling premium income. Insurers will no longer fight to the death on price but will shift the battle to more sustainable ground as the competitive narrative becomes not about the cheapest cover but the most compelling value-added services and IoT incentives: 85 per cent of our respondents agree that value-added services and incentives based on data from connected devices will revolutionise non-price differentiation. How many insurers currently offer or will go onto offer personalised value-added services/incentives based on data from connected devices? 66% will need to make significant to massive investments in data management and analytics to offer personalised value-added services Ready for the IoT data bonanza? A revolution is coming but it remains unclear how quickly it will roll through the industry, and to what extent incumbents will be in its vanguard. Only 22 per cent of our respondents currently offer personalised value- added services/incentives based on data from connected devices – and this is dominated by motor telematics.The rest are scrambling to catch up: within two years 27 per cent plan to have an IoT-based offering, rising to 53 per cent within five years. Alarmingly, this still leaves just under half effectively out of the race to offer value-added services to the connected customer. The significance of this trend is further underlined by the expectation that increasingly aggregators will rank insurers on their value-added services and incentives: 84 per cent expect this to be a feature of aggregator sites within five years. Just as these price comparison sites helped drive a race-to-the-bottom on premiums, this trend will raise the bar on what customers expect from their insurer with purchasing decisions no longer based almost solely on premium level but on the wider value of the package. 84% expect aggregators will rank insurers on their value-added services and incentives within five years
  19. 19. The Future of General Insurance 201620 For many insurers, however, it is not just the scale of the investment but the complexity of the task, which is truly daunting. A toxic tangle of legacy systems with data held in disparate silos makes it difficult to build compelling value-added services: last year, for example, 85 per cent of our 2015 cohort said a lack of a single customer view prevented a high level of personalisation and more than eight out of ten lacked the tools to sift huge data sets for meaningful insight or lacked sufficiently rich customer data. The scale of the legacy challenge should not be underestimated; insurers have been burnt in the past by high cost, hugely complex projects that have too often ended in failure12 . Rebooting the insurance offer is not just about making better use of existing data but also about accessing new data sources. Data from IoT devices supplements sentiments posted on social media with hard facts about how people behave as they go about their daily lives. But customers are increasingly picky about sharing their data; they are aware not only that data-sharing puts them at risk of identity theft or unsolicited marketing13 but also that their personal data is a valuable commodity in its own right.A survey from Symantec, for example, found eight per cent of consumers now value their information at over €10,000. Another survey of senior managers across Europe found that nine out of ten believe it will become much more important to give consumers real value in exchange for the right to process their personal data by 202014 . Our own research in 2015 suggested personal data stores – online services that allow customers to store, manage and release their own data in a highly secure and structured way – will be commonplace by then15 . And, in 2016, our insurance survey respondents expect this trend to further increase, with data brokerage and concierge services expected to grow ever more popular as consumers seek to collate, manage and trade access to their data: 84 per cent expect single lifestyle portals, through which customers will manage their affairs with banks, insurers and utility providers amongst others, to be mainstream by 2026, and more than half (55%) expect this within five years. Access to data: getting up close and personal with customers 12 Customer-centric Differentiation in Insurance: Meeting the Data Challenge, Marketforce/Visionware, September 2015, found that organisations were deterred from undertaking projects to build a single customer view because of the high cost of technology solutions, the scale and complexity of the challenge and previous failed projects. 13 Research by Direct365, September 2016 found that 69 per cent of the UK do not trust businesses to keep their personal details confidential 14 20:20 Customer Insight,A TCS/Marketforce report, January 2016 15 The Future of General Insurance 2015: 79% believe that PDS will be commonplace within five years believe a significant majority of digital natives will share data from connected devices in return for lower premiums think that a significant majority will also share data from connected devices to reduce risk in their lives 86% 67%
  20. 20. A special report 21 Our respondents certainly see an appetite for risk management guidance as well as lower premiums, and insurers such as Allianz are beginning to cater for this market.The German insurer has partnered with Panasonic to offer sensors that detect window breakage or water leaks and send alerts to both the user’s mobile device and Allianz. Allianz will then dispatch repair teams to address the issue quickly and mitigate the loss. Smart insurers have also spotted that the data generated by connected devices can be used to leverage consumers’ growing enthusiasm for benchmarking themselves against their peers: last year four out of five of our respondents expected this to be a key theme for the future. Aviva’s Aviva Increasingly insurers will also be able to mine unstructured data for further personalised risk management guidance. Rather than providing generic advice for homeowners in flood prone areas, for example, insurers will be able to tap data from social media to find out about, say, expensive equipment stored in basements or when homes are regularly unoccupied in order then to provide finely calibrated guidance on how to reduce and mitigate these risks. Drive app, for example, records drivers by detecting movement via GPS on their mobile phone and then ranks them out of ten based on cornering, braking and acceleration. Drivers can compare their score against the national average, with safe drivers able to get savings on their car insurance. Our survey points to a stark generational difference, with those who have grown up with the internet – so-called digital natives – far more comfortable with sharing data than their older counterparts. 86 per cent of our respondents believe a significant majority of digital natives will share data from connected devices in return for lower premiums compared to just 15 per cent who believe this to be the case for those who grew up before the internet. Some surveys suggest the Millennial generation would not even baulk at regular urine or blood testing to secure reduced health or dental premiums16 . 67% believe a significant majority of digital natives would be willing to share data in order to receive personalised feedback to reduce the level of risk in their lives, while 19% think the same for digital immigrants. Risk management guidance Leveraging appetite for benchmarking against peers 16 Born Yesterday:Will Millennials disrupt the insurance industry? Pegasystems/Capgemini, 2015
  21. 21. The Future of General Insurance 201622 Insurers need to capitalise on consumer willingness to share data in return for engaging insights that help them meet their goals and improve their quality of life.There’s a clear opportunity to reposition insurance, shifting from a once-a-year grudge purchase of possible compensation should the worst happen to a positive life-enhancing dialogue between insurer and insured, working together to reduce the level of risk in the world. 75 per cent of our cohort agree that, with the increasing amount of real-time risk data provided by IoT, insurance is set to become more about risk prevention and less about compensation. Those that can think outside of the insurance box and find ways to add meaningful value to customers will be those that survive the “Uberisation” of the insurance market: indeed, 84 per cent of our respondents agree that market share will increasingly depend on the ability to engage consumers with propositions that stretch beyond insurance. Already, numerous promising start-ups have emerged in this space. Brolly, for example, set to launch later in 2016, is a personal concierge app powered by artificial intelligence that establishes whether customers are over or under-insured, identifies missing cover and checks the best price: eight out of ten expect this start- up to succeed. Neos Insurance meanwhile uses smart home technology to provide 24 hour monitoring and emergency assistance bundled with an award-winning home insurance policy from Hiscox.A massive 95 per cent of our respondents expect Neos to succeed in the next three years. Motor carriers too are exploring this trend: one of the first was Peugeot’s “Just add fuel” programme, a finance contract that bundled insurance, servicing, roadside assistance, warranty and car tax into one monthly lease payment.This kind of subscription-based service, that bundles insurance into a wider package, remains niche for now but 57 per cent of our respondents expect it to be mainstream in the next five years. Adding value beyond the traditional confines of insurance will also be in the domain of insurance distributors.Two-thirds of respondents expect value-added distribution, where insurance is only part of the service offered, to be a significant trend in the next five years. Repositioning the insurance proposition Value-added distribution Three out of four agree insurance is set to become more about risk prevention and less about compensation 84% agree that those players that engage with consumers with propositions that stretch beyond insurance will take significant market share Beyond insurance expect value-added insurance distribution to be a significant trend in the next five years 75%
  22. 22. 04: Pricing and the Internet of Things Trajectories for IoT growth vary widely depending on how analysts define a connected device and their expectations as to how easily brakes on growth will be overcome. Gartner, at the more conservative end of the spectrum, puts the numbers of connected things in use by 2020 at 20.8 billion, while IDC expects expect 22 billion by 2018 and Cisco 50 billion devices in 2020.
  23. 23. The Future of General Insurance 201624 Whichever growth trajectory is followed, one thing is clear: a vision of a hyper-connected future, where low cost sensors emit streams of data from everything from running shoes to livestock to oil pipelines to road junctions, will reshape our world – and with it centuries-old models of insurance. Big data analytics will allow underwriters to finely calibrate risks not only on a person-by-person basis but also on a moment-by-moment basis, while the once-a-year grudge renewal will be replaced with flexible pay-as-you-go pricing that reflects changing real-time risks. Structurally, the industry could be reshaped as computers move in to better manage and price risks, just as smart algorithms have banished the stereotype of the Wall Street trader as a master of the universe with an expensive suit and a nose for a good deal. Trades today are increasingly executed in fractions of a second by hugely powerful machines programmed by a computer science and maths prodigy from Stanford: almost 80 per cent of forex futures trades are now thought to be down to algorithmic trading strategies17 . It’s clear these lightning-fast trading strategies could in time be adapted to apply to highly complex risk calculations to deliver ever more accurate insurance pricing: 89 per cent of our respondents believe it’s likely that the growth in real-time risk data will see some risks automatically re-broked at frequent intervals by a new style of insurance aggregator. 04: Pricing and the Internet of Things 89% believe real-time risk data will see some risks automatically re-broked at frequent intervals by a new style of insurance aggregator Of course, at present the use of connected devices in insurance pricing is most evident among motor carriers, where telematics technologies have provided a head start in designing policies based on real-time data streams from connected devices. After a slow start, it seems telematics technology is approaching a tipping point, with the British Insurance Brokers’ Association reporting a 40 per cent surge in the last year to almost half a million live policies. Uptake remains largely confined to young drivers seeking to reduce their eye-watering premiums – telematics devices monitor time of journey, speed, cornering, acceleration and braking, allowing safe drivers to earn discounts of up to 25 per cent. Importantly, this can also reduce crash risk for new drivers by as much as 40 per cent, a statistic that is hard to ignore given that young drivers make up just 12 per cent of licence holders yet account for 25 per cent of road deaths. Little wonder the industry is lobbying the Government to reduce Insurance Premium Tax on telematics-based policies. If successful, this would be another shot in the arm for dynamic pricing in motor. Motor: taking the lead 17 Commodity Futures Trading Commission, 2015
  24. 24. A special report 25 Despite the benefits, as matters stand uptake of insurance telematics remains low: after all, there are more than 31 million cars on the road in the UK but fewer than half a million live telematics policies. A number of factors are likely to push more motorists to embrace “black box” cover, not least recent hikes in annual premiums. By Q2 2016 higher premiums and the insurance premium tax meant people were paying 15 per cent more for the same cover, the highest level since BIBA launched its Insurance Price Index in 2010.This could prompt more drivers, of all ages, to seek out ways to reduce their insurance costs. Indeed, research suggests over half of all drivers are now willing to consider “black box” policies and would on average only need to see an £89 a year saving on insurance premiums to make the switch18 . The Internet of Things has the potential to make our lives, at home and at work, easier and safer by giving a voice to the appliances and infrastructure that make up our physical spaces. Much has been talked of smart white goods and thermostats that can optimise the economical running of our households, automatically re-order staples such as laundry powder or milk and self-diagnose faults. In commercial settings, sensors can quickly identify over-heating plants, track inventory in real-time and improve security. Data flows allow dynamic pricing so that premiums increase when a property is left empty or maintenance schedules are cut, encouraging policyholders to take action to further reduce their risk profile. Insurers are keen to tap into this growing appetite: among our surveyed motor insurers, 38 per cent either already offer telematics-based cover or plan to do so within 12 months, rising to 65 per cent within two years. By 2021 our respondents expect offering a telematics-based product to be the default position, with 93 per cent expecting to price dynamically based on a telematics device by that date. Even so, there’s a residual distrust of telematics, with many drivers still to be convinced of the benefits or worried about privacy issues19 . It is clear that the industry will need to work hard to win over telematics refuseniks by having transparent policies and robust security around data use as well as engaging offers with compelling price points. expect to offer dynamic pricing based on a telematics device within five years Buildings and contents: not so smart 18 Research by uSwitch.com, the price comparison and service switching website, conducted in February 2016 19 The uSwitch.com survey found one fifth of drivers would never consider taking out a black box policy 93% 38% by 201765% by 201893% by 2021 The timeframe in which insurers expect to offer telematics-based cover
  25. 25. The Future of General Insurance 201626 There is also the potential for insurers to use data from smart buildings to help policyholders make better use of their assets. Data from smart thermostats, for example, could be shared to help homeowners benchmark their energy usage against similar properties to reduce bills while footfall traffic from location beacons could be packaged to help small businesses rethink opening hours and staffing levels. Of course, as technology prices fall and gizmo-loving Millennials set up home, the adoption of smart home kit is likely to accelerate. PwC forecasts the connected home market could be worth almost US$150 billion globally by 2020, representing 35 per cent average annual growth over this period, while Gartner thinks the typical family home could host more than 500 smart devices by 2022. Insurers should be ready to capitalise on this data boom with relevant and engaging policy offers: our survey does indeed show that 67 per cent plan to offer dynamic pricing based on data from IoT devices for buildings and contents insurance within five years. Pet insurers, too, are keen to use connected devices for dynamic pricing: 71 per cent plan to offer telematics-based pet insurance within five years.The possibilities of dynamic pricing, based on wearables data about the activity and diet of the pet, are bound to appeal to pet lovers seeking to reduce costly premiums and who would also value the ability to track their pets and monitor their health. Retrieva is a dog tracking collar that provides live phone tracking on detailed topographical mapping or satellite imagery to help owners track their pet on their computer or tablet, while GPS collar Nuzzle is launching a mobile-first insurance solution.According to our survey, the numbers of insurers currently offering dynamic pricing based on pet wearables is small – just four per cent – but this is set to rise to seven per cent within one year, 17 per cent within two years and 71 per cent within five. Yet there is no sign of the industry rushing to create smart buildings and contents policies: in the next 12 months just 15 per cent will have a dynamically-priced proposition for buildings and contents insurance, rising to 32 per cent within two years.This cautious approach in part reflects the relatively slow adoption of smart home technologies by consumers, with many wary about privacy and others deterred by the still high costs of many smart appliances and the belief that the technology is still evolving20 . 71% plan to offer telematics-based pet insurance within five years 6% currently 32% in two years 67% plan to offer dynamic pricing based on data from IoT devices for buildings and contents insurance within five years 20 Mobile Consumer 2016, Deloitte, September 2016 Only 6% offer dynamically-priced buildings insurance; 32% expect to do so within two years
  26. 26. A special report 27 Benchmarking of driving behaviour, gamification of fitness goals or updates on pet health risks can embed insurers into the to and fro of our daily lives, potentially reducing the debilitating churn that has so long characterised the industry at the same time as encouraging less risky behaviour, as policyholders see the by-the-minute cost of bold overtaking manoeuvres or a bloated BMI. It’s the clear way forward for our respondents: 85 per cent agree that dynamic pricing could greatly improve customer loyalty by creating more frequent and meaningful touchpoints throughout the policy life cycle; 96 per cent expect it to reduce risky behaviour. Crucially, these types of IoT-enabled products are not just about reducing premiums and improving underwriting accuracy: the data generated can be analysed, anonymised where necessary and shared with policyholders.With this comes two benefits: opportunities outside the annual renewal cycle for communication with customers and a likelihood that customers will respond to more data about the risks they face by mitigating them, to the benefit of both themselves and society. Towards a new customer relationship 96% believe it will reduce risky behaviour 85% agree that dynamic pricing could greatly improve customer loyalty Seven out of ten believe some customers will become uninsurable unless they accept the use of connected devices to monitor and manage their risk The rise of the Internet of Things is not without its detractors, however, with concerns about “Big Brother” looming large for many customers. There are also questions about inclusion and affordability for vulnerable customers: seven out of ten of our respondents believe some customers will be uninsurable unless they accept the use of connected devices to monitor and manage their risk. This will be an issue not just for the industry to answer but society as a whole.
  27. 27. 05: Artificial intelligence: an operational game-changer? 90 years ago, Konrad Zuse invented the first programmable computer, the Z1, in his parents’ living room. Fast forward to 2016, and computers are now being taught to learn, plan, reason and even recognise emotions. And in insurance, artificial intelligence is fast becoming an operational game-changer.
  28. 28. A special report 29 This doesn’t mean customers will be interacting with C-3PO in the future; in the digital era, robots do not necessarily come in a metal tin. Robotic process automation (RPA), for example, is actually computer software that organisations configure to capture and interpret the actions of existing business process applications, such as claims processing or customer support. Once the “robot software” understands these, it can take over the running of them – it is, in effect, software automating the use of other software – and it uses that software far more efficiently, accurately and cost-effectively than any human. Capable of handling high-volume transactional processes with a greater degree of accuracy, in shorter cycle times and at a fraction of the cost of human full-time equivalents21 , RPA can transform productivity and performance for many businesses. Science fiction has long touted a vision of a future in which robots do all the heavy lifting, leaving the human masters to lead a life of leisure and improvement.While automation has had a devastating impact on employment in manufacturing since the 1980s, it is only now with advances in artificial intelligence and advanced robotics that we are accelerating towards a future in which huge swathes of jobs once considered safe from automation may be lost. Lawyers, underwriters, investment bankers, and even medics are at risk: earlier this year the developments in artificial intelligence and machine learning, robotics, nanotechnology and 3D printing, could see the net loss of more than five million jobs by 2020, with the greatest losses in white-collar office and administrative roles. Insurance, with its vast reams of data entry and processing, risk analysis and compliance checking, is primed for RPA. Indeed 20 per cent of our respondents expect to make significant investment in this technology in the next two years, rising to 37 per cent within five years.This has bottom-line implications, with studies suggesting investment can lead to 23-50 per cent cost savings and a return within six months to two years22 . Our respondents are clearly cognisant of the compelling cost savings, with 81 per cent agreeing that high quality and affordable RPA will lead some insurers to bring outsourced activities back in house. expect to make significant investments in RPA 21 According to the Institute of Robotic Process Automation, a software robot can cost as little as one third the price of an offshore full-time employee (FTE) and as little as one fifth the price of an onshore FTE. 22 A case study cited by the IRPA involves a BPO service provider handling the application for processing insurance benefits, a process completed by a full-time human employee in an average of 12 minutes. A software robot completed the process in one-third of the time, tripling the transaction volume for one-tenth of the FTE cost. By automating this single process, the provider achieved a positive return on this investment within six months. 20% in two years 37% in five years 81% agree high-quality and affordable RPA will lead some insurers to bring outsourced activities back in house
  29. 29. The Future of General Insurance 201630 However, the robotics revolution is much more profound than expedited back office processing. The game-changer is not low-cost automation of routine tasks but artificial intelligence (AI), although this is a broad term that covers many sub-sets of data science including: Analysts predict AI-powered innovation will begin “a disruptive tidal wave”23 as robots and intelligent agents begin to eliminate many roles. One study suggested up to 35 per cent of jobs in the UK will be at high risk of automation in the next 10 to 20 years24 . Tech leaders are betting heavily on AI: Google has splurged on robotics and machine learning companies in recent years, including DeepMind, which in 2016 saw its Go-playing computer Alpha Go defeat the 18-time world champion Lee Sedol. IBM, meanwhile, has a US$1 billion commitment to develop Watson, its cognitive computing platform that can understand natural language and scour millions of documents of text in seconds. AI-powered chatbots and virtual assistants capable of reading a person’s behaviour, interpreting their needs and anticipating their next steps, are increasingly commonplace from Apple’s Siri and Amazon’s Alexa to Facebook’s army of Messenger bots.While this front-line deployment of virtual assistants will accelerate consumer comfort with AI interactions, it is behind the scenes that many of the real gains will be felt. Companies will be able to process and analyse ever greater volumes of data – including unstructured data such as images – and decipher natural language quicker than ever before, and then learn from those insights to make smarter decisions, predict outcomes and initiate further improvements in how the business is run. Rise of the robots Improving claims, detecting fraud Machine learning the science and engineering of making machines that don’t just follow human commands but can self-learn Deep learning a type of machine learning that uses multi-layered neural networks to learn Cognitive computing the simulation of human thought process based on how the brain works, and using natural language processing and machine learning to enable people and machines to interact more naturally Agree Strongly agree Strongly disagree Disagree 69% agree that machine learning will deliver huge benefits in accelerating claims assessment and reducing claims leakage 23 Forrester,The rise of intelligent agents, 2016 24 Deloitte, From brawn to brains - the impact of technology on jobs in the UK, September 2015
  30. 30. A special report 31 Already there is widespread confidence in one real-world use case for AI: 69 per cent agree that machine learning will deliver huge benefits in accelerating claims assessment and reducing claims leakage.AI will analyse the claims process to identify bottlenecks and streamline workflows to reduce claim resolution times, eliminating stress for the policyholder and costs for the insurer. Deep learning models, for example, can analyse images and IoT data flows to automatically categorise the severity of damage to vehicles or buildings, estimate repair costs and trigger remediation for swift resolution of the claim. And machines, crunching through more data than ever thought possible, will be far better at predicting and identifying fraud: half our respondents expect to make extensive use of AI for fraud detection within two years, rising to 70 per cent within five. Insurers are also tapping into AI to improve the customer experience. AI frontrunners are already seeing improvements in their ability to anticipate and meet customer needs. USAA, for example, a provider of banking and insurance services to the US military personnel and their families, is using AI to understand when, how and why customers will be in touch, allowing it to match resources to demand and ensure agents can engage in personal and insightful interactions. Broad pattern analysis and matching has allowed USAA to improve the accuracy of its predictions of how users will get in touch and for what products from 50 per cent to 88 per cent. LV=, meanwhile, has deployed a virtual assistant that leverages AI technology, including natural language understanding capability, to deliver a more personalised and effortless customer experience for its brokers.The virtual assistant can understand intent by engaging with brokers to quickly access the information they need, allowing them to self-serve around the clock. Given that one study found 80 per cent of insurance agents have trouble analysing data fast enough to meet customer demand25 , the lightning-fast reactions of AI assistants can deliver a CX edge. AI: ready to serve 25 Bigger Data:A Look at How Far Insurers Have Moved to Take Advantage of Opportunities, Celent, January 2016 20% Now Within 1 year Within 5 years Within 2 years Within 10 years 60% 100% 0% 40% 80% Estimated uses of AI over a ten year period 70% plan to make extensive use of AI for fraud detection within five years Fraud detection Automated personalised marketing Guiding customers through a process
  31. 31. The Future of General Insurance 201632 Among our respondents, 31 per cent foresee their organisations deploying AI-powered avatars within the next 12 months to guide customers through a process, rising to 73 per cent within five years. 31% in a year 73% in five years And just as Google and Netflix have harnessed AI to delight audiences with personalised recommendations, now insurers are keen to automate personalised marketing. Insurers can use AI to make sense of unstructured data, using text mining, topic modelling and sentiment analysis to interpret social media postings and apply speech/audio analytics to call centre recordings.The next stage is to use machine learning to make inferences about future behaviours based on millions of data sets and then leverage those insights to personalise interactions and tailor offers. 41 per cent of our respondents will be using AI extensively for automated personalised marketing within two years, rising to 65 per cent within five years. And this doesn’t even touch on AI powering through data from IoT devices to identify risks in order to allow early advice and intervention of potentially enormous value to the insured – entailing massive customer engagement potential.AIG, for example, has partnered with wearables start-up Human Condition Safety that couples wearable devices, AI and building information modelling to identify risks and reduce the frequency and severity of work-related injuries. Data-intensive underwriting departments will also be transformed by AI as intelligent machines sift through vast data sets and highlight new and emerging risks. Studies suggest that underwriters spend 70 per cent of their time performing low-value tasks, such as searching, aggregating, and selecting data, and only 30 per cent on risk selection, a ratio that could potentially be reversed by the application of AI and machine learning26 . AI-driven marketing Underwriting transformed 41% in two years 65% in five years 41% will be using AI extensively for personalised marketing within 2 years, rising to 65 per cent within 5 years 26 The AI Revolution In Insurance:A Reality Check, NTT Data Consulting, June 2016
  32. 32. A special report 33 By applying deep learning to vast reams of IoT data, unstructured text, call centre voice recordings and images,AI will facilitate highly calibrated risk analysis and pricing and highlight key considerations for human decision-makers. Swiss Re, for example, is using AI to develop underwriting solutions in its Life & Health Reinsurance business unit. By applying the power of cognitive computing, the new platform should allow Swiss Re professionals to more accurately price risk. And the benefits of using AI in underwriting departments stretch beyond risk-pricing accuracy alone:AI-created models that predict the frequency and severity of losses can also be applied in product design and marketing to improve the overall lifetime profitability of customers. Our respondents do not see AI as a threat to their jobs, however. Rather than expecting AI to replace humans, they foresee it freeing them from time-consuming and mundane tasks to focus on where human input makes a real difference. Certainly two out of three (66 per cent) believe RPA will deliver positive internal change, relieving the burden on staff so they can better engage with customers.This is key: customers are seeking out personalised and engaging experiences, regardless of whether the interface is a snazzy app, an AI-powered avatar or a friendly voice in the call centre.Automation without personalisation will be a dead-end for insurers and this is certainly recognised by our respondents: 92 per cent agree that investment in data will be imperative to maintaining personalised and engaging user experiences in an increasingly automated world. 27 IDG Enterprise’s 2014 Big Data Survey reported that 65% of respondents felt occasionally overwhelmed by incoming data, 53% said the data influx had delayed important decisions and 42% had lost business due to an inability to quickly find sought-after information. Almost seven out of ten expect to use AI extensively for underwriting within five years Humans and robots, better together Little wonder 69 per cent of our respondents expect to use AI extensively for underwriting within five years. Yet with some insurers, such as Swiss Re, already deploying cognitive computing, those five years could see a widening gulf in underwriting performance between those leveraging AI’s continuous and high-speed analysis of vast data flows and those left behind, drowning in an ever-growing ocean of data they cannot hope to analyse27 .
  33. 33. 06: Blockchain: insurance rebooted Of all the disruptions to financial services accelerating down the pipe, blockchain could perhaps be the most disruptive. Many believe it to be the most significant technological development to affect financial services since the internet28 . It is also the least understood. Indeed, nearly four out of ten (39 per cent) of our respondents admitted they had no knowledge of blockchain – a surprisingly high number given the increasing hyperbole about a technology that has attracted its fair share of headlines, both positive and negative. 28 The Future of Retail Financial Services, Marketforce, Pegasystems and Cognizant, 2015
  34. 34. A special report 35 A blockchain is a digital ledger of transactions, agreements and contracts.This ledger doesn’t sit in one place but is distributed across several, hundreds or even thousands of computers around the world. Digital records are lumped together into “blocks” and then bound together cryptographically into a chronological “chain” using complex mathematical algorithms. Everyone in the network can access an up-to-date version of the ledger, making it very transparent.The ledger can only be updated with the agreement of every computer in the chain and each block has a unique digital signature, which means there is a verifiable tamper-proof chronological record of every change, ensuring transactional integrity without the need for a trusted central party. Much excitement is building around so-called “smart contracts”, although the term itself is much disputed. It can refer to code that is stored, verified and executed on a blockchain or to a legal contract expressed in code. It is smart legal contracts that have insurers excited: when pre-programmed conditions are met, such contracts can be executed automatically by a computer, eliminating any ambiguity and potentially the need for third parties to adjudicate on the terms. Smart contracts bring clarity and predictability to contractual arrangements and because they are recorded on a blockchain the parties know the terms cannot be altered. Smart contracts also raise the possibility of new contractual relationships, such as machine-to-machine commerce, allowing smart appliances to purchase their own consumables or barter with peer devices, with the financial transactions executed via blockchain.This isn’t science fiction: IBM is already working with Samsung on such scenarios. So blockchain provides security, speed and transparency – the very building blocks of all disruptive technologies. What is blockchain? Blockchain has outgrown its initial notoriety as the platform for the crypto-currency, Bitcoin, and today mainly makes headlines for its potential to transform banking: Santander InnoVentures has estimated blockchain could save banks globally US$20 billion annually in settlement, regulatory and cross-border payment costs, while Blythe Masters, ex-head of commodities at JP Morgan and now CEO of buzzy blockchain start-up, Digital Asset Holdings, has described the technology as “analogous to email for money”. Little wonder banks and investment funds are committing huge sums to develop blockchain propositions, with this emergent technology having already attracted over US$1.1 billion in VC investment. The summer of 2016 saw ATB Financial in Canada send C$1,000 to Germany’s Reise Bank over a blockchain platform developed by San Francisco-based Ripple.This has been hailed as the first real international money transfer using blockchain – and it took only 20 seconds to complete compared to the several days of most international bank transfers, underlining the technology’s profound disruptive potential. This investment is already starting to move blockchain projects beyond simulations and into the real world
  35. 35. The Future of General Insurance 201636 While banking looks set to bear the full force of blockchain disruption, the insurance industry will also feel its power. Insurance pioneers are already engaging with blockchain. It’s worth noting the variety and scope of the pilots underway to understand how the technology could affect different areas of the industry: Claims is the area of insurance where the potential impact of blockchain is most obvious. Blockchain could transform the claims process by streamlining back-office processing, while smart contracts could provide more transparent and responsive handling of claims, for both insurer and customer. Customers could have the reassurance that a smart contract on a blockchain would pay out automatically when certain conditions are met. Some companies, such as blockchain start-up Edgelogic, are working, for example, on how blockchain could be used as a bridge between digital payments and the Internet of Things to create a swift and seamless claims experience. A sensor could report to the blockchain when it detects damp, say. That alert would then trigger a set of instructions to transfer cash for repairs from an insurer to a claimant’s account – and even before first notice of loss would ordinarily have been filed. Significant proportions of our cohort see this emergent technology becoming a mainstream platform for huge swathes of their operations. ◉Allianz has conducted a successful pilot of a smart contract for transacting natural catastrophe swaps, confirming that blockchain-enabled contracts could significantly accelerate and simplify transaction processing and settlement between insurers and investors ◉ Chinese insurer Ping An, life insurer AIA and US giant MetLife have joined the R3 international blockchain consortium, backed by more than 40 major banks, which is trialling the exchange of digital assets over distributed ledgers ◉ UK start-up SafeShare Global uses blockchain technology to provide insurance solutions for the sharing economy. It has teamed up with Vrumi, a start-up that connects homeowners with professionals looking to hire workspace.The blockchain platform enables SafeShare Global to provide multiple parties with insurance at short notice at competitive rates Blockchain pioneers in insurance Smarter, faster claims 67% expect smart insurance contracts, where claims are settled automatically upon trigger events, to become mainstream
  36. 36. A special report 37 Recording details of claims on a blockchain also offers the potential to ensure only valid claims are paid: multiple claims for one accident would be easily identified and, when using smart contracts, automatically rejected because the network would know a claim had already been paid. Blockchain is already being used to verify the provenance and ownership history of valuable items: London start-up, Everledger, is a permanent ledger of diamond certification and has clear applications for other high value items, including paintings, antiques and luxury goods.This immutable record of ownership has clear benefits for insurance fraud teams. 75 per cent expect blockchain technology will become routinely used to record claims against the specific objects and events involved. Regulatory compliance and reporting is another area where blockchain could bring huge benefits: there are many ways in which the technology could expedite reporting by enabling regulators to access records on the ledger. Blockchain also provides a time stamp of when documents were created and links each new version of a document, proving it went through necessary iterations, for example, to meet anti-money laundering and know-your- customer processes.This verifiable, tamper-proof trail could be extended to include proof of audit. The implications for the costs of compliance could be material: 65 per cent believe blockchain will become commonly used for regulatory reporting. 67 per cent of our respondents expect to see smart insurance contracts, where claims are settled automatically upon a trigger event, to become mainstream.Travel insurance is an obvious candidate: a delayed flight is a matter of public record that doesn’t require adjudication by a third party.A travel insurance smart contract on the blockchain would pay out automatically when triggered by a data feed confirming the late arrival of a plane, enabling immediate compensation with no claims processing costs for the insurer. Similarly, a crop insurer could conclude a smart contract with a farmer in which payment is triggered by weather data from a national weather service. Upon an agreed number of days without precipitation the farmer would find that funds were automatically available to collect. This frictionless claims experience may become commonplace before too long: one survey of senior insurance executives found that almost three-quarters believe the settlement of insurance claims using IoT data, blockchain and smart contracts will be mainstream practice by 202529 . Reducing claims fraud Regulatory reporting expect it to become mainstream to prevent fraud by recording claims on a blockchain against the specific objects and events involved believe blockchain will become commonly used for regulatory reporting 29 The Future of Retail Financial Services, Pegasystems, Cognizant and Marketforce, December 2015 65%75%
  37. 37. The Future of General Insurance 201638 Blockchain is also expected to be used to earn customer trust around the use of personal data. A customer-controlled blockchain, in which the data is not stored on the blockchain but remains on the user’s personal device with only the verification registered on the ledger, could be used for identify verification or medical records without putting personal data at risk – a solution that may become key as customers grow ever more wary of sharing data with third parties. Our survey of 500 financial services senior executives last autumn revealed that 91 percent expect it will eventually be mainstream practice for consumers to hold their personal data on blockchain. Start-up Tradle is already working on blockchain solutions for know-your-customer data in order to speed up and simplify the process of on-boarding new customers. Yet our survey makes this vision of blockchain-enabled transformation seem over-ambitious: worryingly, 74 per cent of our respondents have done no work on blockchain, 23 per cent are examining potential use cases and just 2 per cent are at testing stage. While these statistics suggest an alarming degree of complacency in the face of a technology that has been described as “email for money”, 22 per cent of our cohort do at least expect their organisation to make a significant investment in blockchain within two years, rising to 50 per cent within five years. Even London’s Lloyd’s Market, a renowned technology laggard, is assessing blockchain use cases as part of its Target Operating Model (TOM).This five-year modernisation plan, designed to support the ease of doing business in this iconic but conservative market, hauling it into the innovation age, aims to adopt one touch data capture in a unified global digital format. Blockchain could form a part of this, bringing increased speed, risk recording and transparency to market operations. One possible use case under consideration is the creation of blockchain-based digital “deal rooms” where documents could be securely shared and logged, replacing a centuries-old business model of personal relationships, paper documents and physical proximity to the market.The idea is that a digital deal room powered by blockchain would increase access for international business and drive growth. Our respondents are largely in agreement that the TOM will incorporate some kind of public distributed ledger, with seven out of ten believing that blockchain will form the backbone of Lloyd’s Market modernisation within ten years.This would really set the standard for the industry at large but, given the lack of blockchain activity among our respondents and the industry’s heel-dragging on innovation, this ten-year window could yet prove ambitious for those that have to date not even grasped the basics. Personal data on blockchain Industry progress Blockchain in the Lloyd’s Market No work on blockchain yet Examining use cases Testing stage Using blockchain
  38. 38. 07: The ongoing battle against insurance fraud Insurance fraud is a persistent and pernicious undercurrent that continues to pull resources and focus away from the customer. Indeed, efforts to battle the fraudsters often detract from the customer experience, with customers aggravated by identity checks and the feeling that their claims are subject to suspicion. Yet companies cannot afford to dial down efforts to detect and prevent fraud: figures from the Association of British Insurers (ABI) show that last year insurers uncovered the equivalent of 2,500 frauds worth £25 million every week. Sponsored by:
  39. 39. The Future of General Insurance 201640 No industry could afford to ignore this level of sustained fraud. Insurance companies are increasingly proactive: they are investing £200 million a year to tackle the problem31 ; stepping up collaboration with the police; funding the establishment of new anti-fraud agencies; and welcoming legislation designed to tackle the UK’s dubious reputation as the “whiplash capital of Europe”. The Insurance Fraud Taskforce, which was set up at the beginning of 2013 and consisted of industry and government representatives, made 14 recommendations to address insurance fraud in its final report published in January 2016. More data sharing, a clampdown on nuisance calls, an aggressive response to suspect claims and tougher action against dishonest solicitors were among the remedies suggested. Data sharing was a big theme, with the report calling on the insurance industry to work harder to put more data into fraud databases. As the industry has upped its defences, some types of fraud have been reduced, diverting fraudsters to other vulnerabilities in the system: a crackdown on false whiplash claims has, for example, seen fraudsters target “slip and trip” and noise-induced hearing loss claims, fuelling a 36 per cent surge in detected dishonest liability insurance claims last year according to the ABI. There have also been real successes, however, most notably with a welcome dip in the number of dishonest motor claims, which remain the most common and highest value frauds.The ABI attributed the slide in the number of detected motor frauds in 2015 (at 70,000, down two per cent on 2014 levels, and 10 per cent down by value) to improved management of claims within the industry and the work of the Insurance Fraud Bureau (IFB) and the industry-funded Insurance Fraud Enforcement Department (IFED), a specialist police unit. 07: The ongoing battle against insurance fraud The value of detected insurance fraud in the UK is estimated to be more than £1 billion annually, with undetected fraud adding in excess of a further £2 billion30 30 Insurance Fraud Taskforce: final report, January 2016 31 Association of British Insurers (ABI), September 2016
  40. 40. A special report 41 Yet our survey shows, despite the industry’s ongoing commitment, insurance fraud remains a real and present threat. Across the different categories of fraud, only seven per cent of our respondents reported any decrease in fraudulent activity, and for many organisations fraud levels remained persistent and unchanged last year. It seems the industry is spending millions of pounds to stand still in the face on an ongoing onslaught from opportunistic and organised criminals. In September 2016 tech giant Yahoo revealed that it had been the victim of what is thought to be the largest internet theft on record, with the personal data of at least half a billion users stolen in what was described as a “state-sponsored” attack.The scale of the attack meant it made headlines around the world, but every day hackers are attacking companies to steal data that can be used to impersonate innocent victims, either to steal their money or use their identities to commit a wide range of frauds. One study estimates there are up to 3.25 million victims of identity fraud in the UK, with a direct cost to victims of almost £5.4 billion33 . More worrying are the significant proportions (45 per cent of respondents) who reported increased levels of fraud, led by organised frauds of all kinds. It is clear that criminals see the £1 trillion insurance industry as fair game: the scale of organised crash-for-cash scams discovered by the IFB is astonishing – at any one time, 30 to 40 criminal gangs are under investigation. IFED has secured 207 convictions, issued 281 police cautions and recovered assets worth in excess of £1.3 million, and at any one time has £20-£35 million of fraud under investigation32 . A constant and sustained onslaught Identity theft and the dark web 32 Insurance Fraud Taskforce: final report, January 2016 33 Statistics from Experian, May 2016 Only 7% have witnessed a decrease in any of the main categories of fraud 45% have seen increased levels of organised fraud in the last year
  41. 41. The Future of General Insurance 201642 Insurers are clear that identity fraud opens the door to wide-scale insurance fraud by allowing criminals to pass “know-your-customer” checks: last year 55 per cent of insurers said stopping identity theft would be the most effective way to address organised insurance fraud34 . Delving into the murky underworld of the dark web, the part of the internet that requires special software to access it and where organised criminals trade stolen identities and health records alongside drugs and illegal pornography, provides an opportunity to detect stolen identities at source.Although buying a stolen identity is now cheaper than ever before35 , few insurers plan to monitor the dark web as part of their fraud detection efforts: just 17 per cent of our respondents plan to use information from the dark web within two years, rising to 40 per cent within five years, while only 5 per cent do so at present. Only 5% are using information from the dark web in the fight against fraud Of course, insurance fraud is not just the preserve of the hardened criminal. Despite public awareness campaigns highlighting that the victims are not faceless corporations but friends, families and neighbours who must bear the cost through higher premiums, there remains a resistant view that misleading applications or over-egged claims are in some way justified. One survey by Accenture36 found opportunistic claims fraud to be rife, with 17 per cent of those who had submitted a claim in the past two years admitting to overstating their loss to obtain a better settlement (rising to 21 per cent among those who claimed on home insurance).The main justification for overstating claims was a perception that premiums are too high (42 per cent), followed by poor service (37 per cent). With premiums showing a sustained rise over the past year, insurers will need to be aware that some policyholders may find the opportunity to claw back money when making a claim hard to resist. 37 per cent of our respondents report opportunistic fraud has remained at stubbornly high levels in the last twelve months, while 51 per cent have witnessed an increase at both claims and application touch points. Opportunistic fraud: a problem of engagement 5% currently 17% in two years 40% in five years 34 The Future of General Insurance 2015, Marketforce 35 Dell SecureWorks,April 2016 36 Accenture Claims Customer Survey 2014 51% have seen an increase in opportunistic fraud in the last twelve months
  42. 42. A special report 43 Insurers are, however, losing patience with this sustained erosion of margins through low-level fraudulent activity: four out of five of our respondents believe current average penalties for convicted opportunistic fraudsters are insufficient to act as a serious deterrent.There could be mileage in tougher penalties: the Accenture survey, cited earlier, found that 14 per cent over-egged claims because they believed they could get away with it and seven per cent because of a perception that everyone they knew did the same. Challenging this mindset will be key to delivering sustained and material reductions in opportunistic fraud. The industry was understandably alarmed therefore at the recent Supreme Court ruling that “collateral lies” need not invalidate an insurance claim.The ABI said the ruling was a “blow for honest customers” and risked pushing up the costs of insurance and prolonging the pay-out process37 . It remains to be seen what impact this judgment will have on fraud levels in the years to come. 37 James Dalton, director of general insurance policy,ABI, July 2016, commenting on the case Versloot Dredging BV and another v HDI Gerling Industrie Versicherung AG at the Supreme Court 38 Sarah Hill, partner in fraud at insurance law specialist BLM, quoted in EC3 View, October 2015 Four out of five believe current average penalties for convicted opportunistic fraudsters are insufficient to act as a serious deterrent Seven out of ten say the industry does not have adequate strategies to protect itself from professional enablers of fraud Insurers are also plagued by the growing threat presented by professionally-enabled fraud, in which rogue medical professionals, solicitors and vehicle repairers collude to defraud insurers: 44 per cent of our respondents report an increase in professionally- enabled fraud in the past year. Whilst this is a fast-emerging area of fraud38 , seven out of ten among our cohort agree that the industry does not have adequate strategies to protect itself from this threat. Professional collusion
  43. 43. The Future of General Insurance 201644 95% agree the single most effective way to tackle professionally enabled fraud would be to share data on the claims these professionals submit 95% As proven with other areas of fraud, it is pan-industry collaboration through data sharing that will reduce the scope for professional collusion by shining a light on malpractice: 95 per cent of our respondents agree the single most effective way to identify and challenge professional enablers of fraud would be for insurers to share data on the claims these professionals submit.There has been progress here: in 2016 Pet Cache, the first pet insurance claims database, was launched, which provides a centralised platform where insurers can share and interrogate pet claims data to identify suspect vets operating as professional enablers, as well as serial claimants.The initiative came as ABI figures showed a nine per cent rise in pet insurance claims in 2015. Data is a key weapon in the fraud-fighter’s arsenal. Our smart homes, connected cars and wearables, throwing off streams of data about our location, our habits and spending patterns, should make it harder and harder for fraudsters to hide.The deployment of AI can quickly spot anomalies and identify patterns of fraudulent activity that previously went unnoticed. Our respondents are pessimistic, however, about the prospects of data-sharing once the EU General Data Protection Regulation (GDPR) comes into force in 2018, described by the EU as the most important change in data privacy regulation in 20 years. Similar rules are expected to be implemented in the UK irrespective of Brexit, and over three-quarters of our cohort expressed concern that changes to data protection laws will make data sharing more difficult in three years’ time. The changing regulatory landscape adds a layer of complexity to another road-block to effective counter-fraud initiatives, namely the reluctance of aggregators to share data to tackle fraud at point of application, an issue that has no consequences for the aggregators but weighs heavily on insurance claims ratios.With little headway made on overcoming this perennial problem, 87 per cent of our respondents have drawn the conclusion that aggregators won’t take concerted action until the industry can find out a way of giving them a financial interest in doing so. Data roadblocks Data and the Internet of Things: no hiding place? changes to data protection laws will make data sharing significantly more difficult in three years’ time aggregators won’t share data to tackle application fraud until the industry gives them a financial interest to do so 78% fear 87% believe
  44. 44. A special report 45 27% expect to access data from smart home devices 13% from wearable devices 15% from drones Yet our survey shows a relatively slow take-up of data from IoT-connected devices to detect fraud: even two years from now, only 13 per cent of fraud departments expect to have access to data from wearable devices, just 15 per cent to data from drones and 27 per cent from smart home devices. Just three out of ten plan a significant spend on new data sources in the next year, although this should increase thereafter – our survey predicts increased use of IoT data flows by 2021. The gap between the “data haves” and “have nots” among insurers will only widen when machine learning is applied to the vast plumes of data generated by a hyper-connected world. This is where AI can come into its own, using link analysis, text mining, and predictive analytics not only to continuously analyse multiple data sources but also to highlight existing and emerging patterns of behaviour more quickly than existing systems. 57% plan to use AI to detect fraud within five years There’s clearly an appetite among our survey respondents to harness the power of AI: 29 per cent plan to use machine learning in the next two years, rising to 57 per cent within five years. Yet there’s a disconnect when it comes to spending to realise this potential: just 16 per cent plan significant investment in machine learning in the next 12 months and a third lack even modest investment plans.AI could prove a formidable weapon in the fight against fraud; accelerating investment now could prove crucial in the years to come. The AI advantage Access to data from IoT-connected devices to detect fraud: two year prediction One-third of our respondents expect never to use data from smart home devices or wearables to tackle fraud and 37 per cent have no plans to use footage from drones.This failure to tap into the increasing omniscience of IoT could leave some insurers blind to ever more audacious attempts to defraud their business, weakening their bottom-line and adding to the costs of their honest customers.
  45. 45. The Future of General Insurance 201646 The results of this research show strong parallels with what the members of the National SIRA Syndicate are experiencing and provide an interesting insight into the insurance industry’s current experiences, as they grapple with fraud and financial crime. More than half (56%) of claims deemed ‘adverse’ in the National SIRA database, in the first half of this year, were connected to organised fraud.While data matching is still the most effective and proven method for fraud detection, many of our clients are also looking at other approaches to tackle this growing threat. Linking up existing systems with advanced analytics is proving increasingly effective. Network visualisation solutions, such as Orion, are helping insurers uncover connections between fraudulent professional enablers, and the ‘mules’ that perpetrate their fraudulent activities. In the near future we do not foresee the GDPR preventing the sharing of data for fraud prevention, as the biggest impact will likely be on data used for marketing purposes.The GDPR is aimed at facilitating the sharing of data in an appropriate manner, and therefore if adopted correctly should only benefit the industry in the fight against fraud.When it comes to sharing intelligence the pioneering of National SIRA by many in the Insurance sector is a shining example of collaboration in the fight against financial crime.The sooner the message reaches the public that engaging in fraud will lead to the denial of insurance products the faster we will see a change in behaviour. Early use cases of AI, the Internet Of Things and Blockchain already signal that emerging technologies will drive significant change. Insurers are also exploring the opportunities of predictive analytics.A number of trials are ongoing with our predictive analytics solution, Precision, that are yielding exciting results and helping to create a prevention strategy for the future. Synectics Solutions viewpoint Synectics Solutions is a data management and software development company providing financial crime, fraud prevention and information analysis services.The solutions they build have been incredibly successful in reducing risk, combating fraud or financial crime and enabling public and private sector organisations to meet their regulatory commitments. In keeping with their company values they work very closely with all their clients to ensure that the solutions they provide are moulded to fit their needs, and are configured to provide the maximum level of effectiveness depending upon the markets in which they operate. Synectics’ flagship fraud prevention systems – SIRA and Orion – have been built from the ground up by working with key financial services organisations, and a host of fraud and financial crime professionals. Front-end user control and flexibility is supported by specialist consultancy resource that enables these systems to easily adapt and evolve to changing fraud trends. www.synectics-solutions.com
  46. 46. 08: Conclusion Disrupt. Adapt. Repeat. We started this report pointing out that today’s insurance company must be able to flex and adapt to relentless disruption. Whether it stems from Brexit, InsurTech, changing consumer behaviour, the Internet of Things, AI or blockchain, there is no end in sight to the uncertainty and upheaval of a world in transition.
  47. 47. The Future of General Insurance 201648 The one constant for the insurance industry must be the customer. Staying relevant to the connected customer will build a sustainable model for the future as deeper engagement replaces the price-driven cycle of churn – whether through one-swipe, on-demand insurance for Generation Rent or IoT-enabled peace-of-mind for homeowners seeking to protect the people and places that matter to them most. Insurers will need to step up the rate of their digital transformation. It is customers who are setting the pace: they shop without entering a shop, make purchasing decisions based on the reviews of strangers, expect service to be personal and flawless and interact willingly with AI-powered avatars to smooth digital interactions. They also increasingly see personal data as a commodity to be traded for value added services and personalised incentives. Insurance organisations will need to accelerate investment in omni-channel projects, build compelling IoT propositions and embrace AI and blockchain to power business transformation. With the industry’s “Uber moment” widely expected to hit in the next five years, there’s a limited window to embrace innovation and reboot the insurance model for the digital age. The message from our report is clear: incumbents recognise the threat but have not yet equipped themselves with the tools and talent to meet it. Now is the time to act before that window closes forever. 08: Conclusion
  48. 48. A special report 49 Methodology This report is based on research conducted by Marketforce Business Media and the CII in August and September 2016.We surveyed over 843 senior figures from across the UK insurance sector, including insurers, brokers and aggregators, from both personal and commercial lines. Insurers Brokers Suppliers Aggregators Other Commercial lines Personal lines
  49. 49. The Future of General Insurance 201650 Marketforce, the business media company, mobilises knowledge through the creation of strategic, senior-level conferences across the key industry sectors of Financial Services, Utilities & Energy, Rail, Air Transport, Media & Entertainment and Postal Services.With over 25 years experience in creating forward thinking programmes and interactive environments, Marketforce gives business communities the valued insight they need to drive industry forward. For more information about Marketforce’s insurance events, webinars and reports visit: www.marketforce.eu.com/financial-services/insurance To enquire about reports email: sponsorshipenquiries@marketforce.eu.com

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