Digitization is the source of the growth of insurers and the efficiency of the insurance industry
Digitization is a source of new growth, new risks and new efficiencies for the insurance industry. The creation of digital value has led to an increase in the intangible assets of companies, including digital data.
At the same time, increased reliance on digital infrastructure makes such assets more vulnerable to, for example, business interruptions and cyber attacks. In its study “The Economics of Digitalization in Insurance”, the Swiss Re Institute found that the potential benefits across countries and across the insurance value chain are far from exhausted and insurers have room for growth.
In a report, the Swiss Re Institute presents the Insurance Digitization Index, which tracks the progress made in 29 sample countries in digitizing their insurance markets. South Korea took first place in the ranking, followed by Sweden, Finland and the USA.
Although developed markets with strong physical infrastructure and high levels of internet access have made the most progress in digitizing their economies, China, Slovenia and India are catching up. China, for example, rose ten positions in just 10 years. This is because emerging markets can jump right into adopting new digital technologies rather than migrating from legacy systems.
“The study clearly demonstrates a positive correlation between sustainability and digitalization,” says Jerome Hegely, Swiss Re Group Chief Economist. – For society, digitalization is a force that gives more people access to insurance and closes gaps in insurance coverage. For insurers, better underwriting, reduction and assessment of risks from the digitalization of insurance improves the quality and efficiency of their work.”
Digitization of the wider economy will also create new risk pools, opening up opportunities for insurers. For example, digital technologies have facilitated the creation of shared economy business models, leading to fundamental changes in operational risks and liabilities that require innovative insurance risk transfer solutions.
Sharing services like Uber and Airbnb are increasingly changing business models built around ownership. This requires changing insurance programs from personal to commercial lines based on usage, as personal lines typically do not cover commercial use of vehicles and rental homes. Insurers can help achieve this coverage through innovative digital risk transfer solutions.
With the shift from the production of physical goods to the provision of information and services, the global value of intangible assets, which increasingly include digital assets, of listed companies has increased 5-fold over the past 20 years to $76 trillion in 2021.
About 80% of this value remains uninsured. Firms will need protection against digital risks such as business interruption and cyber risks, as well as new liability risks associated with artificial intelligence.
Cyber security is a key concern for companies worldwide, as evidenced by the rapid growth in demand for cyber insurance: Swiss Re Institute estimates global cyber premiums will reach $16 billion in 2023, up 60% from 2021 and $25 billion until 2026.
Digital technologies enable insurers to collect and process large amounts of data through connected devices, data analytics and machine learning. This will allow for a more holistic and accurate risk assessment and better risk assessment.
Digital solutions can also automate standardized tasks such as data collection and analysis for underwriting, reducing costs and ultimately leading to lower premiums. Insurers’ digital transformation projects aim to improve loss ratios by 3-8 percentage points and save 10-20% elsewhere in the value chain.
Despite the rapid digital transformation of the insurance industry, accelerated by recent advances in advanced technology, there is still significant potential for insurers to make insurance more affordable for consumers, says Swiss Re. The insurance industry should see this as an incentive to continue investing in innovative solutions and adapting to new risks.
For consumers, online marketplaces provide greater price transparency, present a variety of insurance products and providers in one place, and allow customers to easily complete the onboarding process online, making insurance more affordable. In addition to distribution, investments in insurance technology have been aimed at increasing efficiency and improving underwriting and claims.
Source: forinsurer.com