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Shock to the system: How Covid may have changed insurance forever

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Black swan events are not unknown to the insurance industry. Whether it’s natural disasters such as the Japanese earthquake in 2011, the Chernobyl disaster in 1986 or pandemics such the SARS virus in 2002. By their nature, these kinds of events can happen at any given moment and without warning or historical precedent.

However, for the insurance industry, and for all of us, Covid-19 has proven that new risks are emerging, and we need insurers to demonstrate now more than ever that they are here to protect us. Recent months have unearthed a series of weak points which desperately need to be addressed

An opportunity to improve 

While the economy is showing some signs of recovery, insurers must not forget the lessons they have learned from Covid-19 and they should see it as an opportunity to grow and improve.

For the insurance industry, the lesson is clear: the risks policyholders face are changing, and digital innovation can help the industry respond. This necessity was pinpointed when people were not just encouraged but asked to work from home in an effort to control the rate of infection. As a result, millions of working lives changed, and may never fully go back to where they were before the pandemic. At the same time, the mobility landscape is changing, holiday and international travel patterns are far from normal and large and small businesses have faced new risks with a fast-paced move to digital channels.

Moving forward it will be essential that insurers can provide new and innovative products better suited to our new ways of living. This must all be supported by an effective online customer experience. This means a faster, more decisive response that addresses customers’ needs when they need it most. This will provide customers with the optionality that they require. Meanwhile, it will provide businesses with a viable contingency plan to ensure business continuity.

First, the insurance industry needs to ask: how can we truly understand our customer, the life they live and the protection they need?

This, naturally, is the million-pound question. To answer it, insurers need to start thinking outside the box. Wider datasets need to be taken into account. By developing trust, insurers could take information such as people’s age, medical history and factors such as employment type into consideration. That way, they can more accurately assess the risk factors on an individual level. Gathering this data and using it in real-time is likely to become easier as things such as wearable technology become more widely used. 

To provide this personalized insurance, it’s clear that data collection is key and, when we talk about this, it’s important to note that some customers will be less willing to provide this data than others. However, if applied correctly, this data can be used to benefit both the customer and the insurer. For the customer, it will ensure that they are receiving a fair and tailored price for their insurance, while insurers can gain a competitive advantage by offering customers this personalized service.

Away from Covid we are already seeing the impact of climate change become a reality., This emerging risk has sparked innovation in areas such as parametric insurance, which is already being implemented in some cases. This ensures that customers are compensated immediately once a certain ‘event’ occurs. For example, in the case of a multi-story building on a flood plain, sensors can be fitted to each floor so that, when the water reaches that sensor, the customer receives their insurance cover immediately and without dispute. This also lends itself to a more personalized approach. If you live closer to the ground floor, your chances of flooding are higher and thus the customer pays a higher premium and vice versa for people living on higher floors.

Now, it’s all well and good saying the insurers should be implementing these kinds of systems, accelerating their digitalization and offering a more personalized approach, but how do they go about achieving this? Cloud-based analytics and technology such as AI and machine learning will be the key.

Walk the walk 

Insurers will already be sitting on a plethora of customer data and that level will only rise with advancements like wearable technology. However, many businesses will not have quick and easy access to this data, meaning it is either being used ineffectively or not at all. Therefore, the first step is to ensure that your data isn’t siloed across disconnected environments. Instead, the different data sets must be interconnected, benefiting from the scale of a cloud platform.

With all the data accessible from one place, insurers can apply analytics and AI models to quickly analyze the data, detect events and new patterns and provide actionable insights. This will be key if insurers are to provide personalized insurance offers in real-time. Deploying analytics and AI models will ensure that they can provide the most up-to-date offers as the data changes or new disruptions emerge.

The level of risk is constantly evolving as disruptions become increasingly frequent. Today the key disruption is Covid-19, but tomorrow it will be growing numbers of self-driving cars and in the coming years it will be climate change. Having the speed, intelligence and agility to react to these will be essential for the insurance industry as a whole. 

Insurers must take this moment as a window of opportunity to improve and modernize. The traditional way of operating is no longer a viable option. If businesses are not just going to survive, but succeed in this increasingly volatile world, they need the best solutions available. Technology can be the best friend they have, and it should be a life-long one at that.

Paul Ridge, Head of Insurance, SAS UK & Ireland

Paul Ridge is Head of Insurance at SAS UK & Ireland.