Insurers are counting on real-time technology to help them cut back payouts, from a system warning ships of nearby pirates to an app offering to buy sleepy drivers a coffee on the freeway.
The lure of products promising to save on claims in a highly competitive market has led to a leap in investment in “insurtech” in Europe to more than US$400 million in the first half of this year, from just US$50 million a year ago.
The aim is to move insurance from a “grudge” purchase, when the only interaction with customers is after something has gone wrong, to a “nudge” product, encouraging safer behavior.
While the idea is not entirely new, the technology is making it more prevalent, prompting warnings from regulators about the risk of discrimination.
Insurers say they can navigate those hazards as they explore blockchain — tamper-proof databases shared and updated across a network — “big data,” analyzing reams of information for trends, as well as the artificial intelligence technology behind driverless cars, drones and voice-recognition software.
“The new technologies have the potential to change the game [from compensation to risk mitigation],” Accenture Ltd head of insurance research UK and Ireland Simon Tottman said.
The biggest surge of “insurtech” investment was in Britain, where, despite the vote to leave the EU, it hit US$279 million in the six months to the end of June from US$9 million a year earlier, analysis by Accenture of CB Insights data showed.
In the rest of Europe, investment jumped to US$134 million from US$37 million and some insurers are also forming partnerships with “insurtech” firms.
A focus in Britain on analysis of social media to assess the probability of claims has fueled concerns about data security.
British motor insurer Admiral Group PLC had to abandon plans last year to take data from Facebook to set insurance premiums following objections by the social media firm.
The Federation of German Consumer Organizations sees risks from big data in personal insurance outweighing benefits, fearing it will shift insurance from spreading risk collectively to being an arbiter of social norms.
New EU data protection legislation coming into force next year should strengthen consumer rights, according to a discussion paper published by European supervisory authorities in Dec last year, which warned financial institutions to consider the legal dimensions of processing social media data.
European regulators also worry about social exclusion and are checking whether data is being used in a way that makes insurance too expensive for those regarded as a higher risk.
Aviva PLC chief digital officer Andrew Brem said the aim is only to promote less risky behavior.
“In our sector, technology can be very powerful in helping people make smarter choices,” said Brem, whose company has an “insurtech” office in a converted garage in London’s so-called Silicon Roundabout area in the east of the city.
Health app Tictrac, due to start working with Aviva later this year, tracks exercise, sleep patterns and the weight of employees in corporate healthcare, offering tips and setting challenges to help prevent the onset of costly conditions.
“Companies don’t get any access to their employees’ data,” Trictrac chief executive Martin Blinder said. “They’re able to see aggregated, anonymized utilization trends.”
The largest UK investment this year was in the domestically focused insurer Gryphon Group Holdings Ltd, which is awaiting regulatory approval to offer tailored life, critical illness and income protection insurance via financial advisers using cloud-based technology.
Telematics — black boxes in cars which enable insurers to check customers’ driving and reward safer habits — have been in use for a while.
Johannesburg-based Discovery Insure chief executive Anton Ossip said accident claims had dropped more than 11 percent since it began using customers’ driving information in pricing in 2011.
RSA Insurance Group PLC global connected insurance director Kenny Leitch said his firm had paid nearly US$3 million in cash rewards to young drivers for safe driving using telematics.
Firms are now looking at how to use telematics in real time to prevent accidents.
For example, said Tottman, an app might suggest a coffee at a service station at the insurer’s expense if it detects tiredness in a driver’s voice.
Consultancy firm EY, data security firm Guardtime, Microsoft Corp and ship operator A.P. Moller-Maersk A/S are building the first blockchain-based marine insurance platform.
“The shared ledger can alert a ship in Somali waters that it’s approaching an area where pirates have just hijacked another ship,” EY global insurance leader Shaun Crawford said.
More than half the 100-plus insurers surveyed by consultants Capgemini said they wanted to partner with “insurtech” firms, according to its annual World Insurance Report published last week with trade body EFMA.
KPMG global cohead of fintech Murray Raisbeck said some inroads by insurers into technology were still largely a public-relations exercise, but “insurtech” is becoming a “permanent feature” of the market.
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