In June 1958, under Alf Pollard’s leadership, Australia’s first commercial computer was installed in the MLC buildings in North Sydney. MLC was (and still is) one of Australia’s biggest life insurers. The computer weighed five tonnes, had a room of its own, cost £160,000 and took 20 million times longer to do an arithmetic calculation than a personal computer would take today. (see Alf Pollard’s biography for more).
Back then, insurance, particularly life insurance, was the tech-savvy industry – AMP followed with its own computer a few years later. But is it today? Since 1958, insurance, particularly life insurance, has stopped being an IT leader, but it seems to be starting to play catch-up.
Six months ago, the Economist published thought-provoking article about insurance and technology.
Insurers are busy trying to make themselves more like tech firms. Aviva last year hired a Progressive executive, Adam Kornick, as its first “global insight chief”. He will help set up a “digital garage” in a trendy part of London, where employees can think big thoughts. Allianz, a German insurer, is spending $500m a year to update its digital capacities. Much of this will go on the creation of its own data cloud, supported by five data centres around the world, so that it does not have to entrust its data to anyone else.
According to a study from a group of financial services company, presented at the World Economic Forum in June this year,
The most imminent effects of disruption will be felt in the banking sector; however, the greatest impact of disruption is likely to be felt in the insurance sector
The study identified two separate but connected trends in insurance, driven by technology:
- Emergence of online insurance marketplaces and homogenisation of risks will force big changes in insurers’ strategies – this trend lead to companies either becoming price takers, or creating loyalty through innovation
- Ubiquity of connected devices will enable insurers to highly personalise insurance and proactively manage clients’ risks – this trend shows the importance of great data analytics, as well as many more sources of data than the traditional underwriting tools.
The full report puts some fascinating (if speculative) colour on both of these trends – drawing links between trends in the wider world (such as the sharing economy) and how insurance might have to transform to keep up. Real change rarely exactly follows the roadmap of reports like these. Whatever happens, it will be different from this report.
People have been saying that the insurance industry is ripe for technology-driven disruption for most of my career. The industry is always in list of who is next with cautionary tales such as newspapers (Killing Fairfax: Packer, Murdoch and the Ultimate Revenge
I prefer to think of it as a positive – insurance is on the cusp of exciting, transformational change. I’d love for insurance to be back in the forefront of technology in the Australian economy – transforming the experience for our customers, at the same time paying claims for them at the time when they need it most.
” …… will enable insurers to highly personalise insuramce … “. My experience (outside Australia) using more powerful data analytics includes varying premium rates at renewal depending on our judgment as to whether the client is price sensitive or not. Previous experience of a client paying the renewal premium as soon as billed may indicate lack of price sensitivity ( we used to talk about ‘loyalty’ and ‘trust’) meaning maybe we could charge more. Previous experience of slow payment, telephone contact to query rates etc. indicates price awareness and we might need to quote a keener rate. I hope this approach proves ultimately shortsighted but it does seem to raise profits. I have wondered whether companies using this approach might suffer a ‘Volkswagen moment’, with severe reputational damage etc. How do you view this sort of behaviour?
Just attended the China Actuarial Annual Conference in Beijing where there was an interesting presentation by Xu Min from Alibaba Group. He expounded on the work they are doing bringing together the internet, the cloud, big data and data analytics. In his view in 10-15 years they will be be offering individualised insurance, they are already offering credit loans (from $1) using algorithms – with no human intervention. My observation – organisations such as Alibaba are moving ahead rapidly and will have a big impact on the insurance industry – we need to keep up.