Digital Transformation

At the 2016 Lockton Complex Risk Symposium, Fredi Lienhardt from Swiss Re gave an overview of current innovative trends in digital transformation.

Internet of Things 

The Internet of Things (IoT) is transforming life as we know it. This includes any of a wide variety of wearables and sensors on devices we use every day. Examples include:

• A FitBit or Apple Watch that monitors our activity levels.
•  Medical monitoring systems that operate independently such as insulin pumps.
• IoT uses in the medical field show great promise in ensuring patients are taking medications properly, performing therapeutic exercises, etc.
• Vehicles use IoT to monitor things from engine performance, maintenance schedules, and the actual operation of the vehicle.
• Devices on machines can now record the sounds on machines and monitor the performance in other ways identify when maintenance is needed.

The explosion of the use of sensors is tied to a rapid drop in costs for such devices. Technology has become much more affordable.

The industrial uses for IoT includes automation, energy optimization, preventative maintenance, tracking vehicle movements, energy management, payload monitoring, fuel optimization, inventory management, and inventory health and safety.

Impact of digitalization on insurance

How does digitalization impact the insurance industry. The world gets measured which allows carriers to develop new analytics to better analyze risk. This means improved risk selection and transparency and more accurate pricing. Data allows for improved risk selection, risk modeling, and risk monitoring. Underwriting can be streamlined to make the process more effective and efficient.

This is also a move away from buying assets to using them as needed. Examples include streaming audio apps instead of purchasing music. The shared economy is another example. What does this mean to the insurance industry? It could create new areas of product liability and shift who is liable for certain risks.

Technology is creating new risks. Cyber is the best example of this. The massive amount of data being collected is at risk of being compromised. As new risks are identified it creates need for new insurance products that respond to these risks.

Digitalization allows for better engagement between insurance carriers and their policyholders. The perceived value of insurance is traditionally tied to having the protection in place in the event of a loss. But is this enough in today’s world? Policyholders are looking for more. Companies with more data have more resources for their policyholders and can do a much better job pricing the risk. In addition, carriers with better data and analytics can work with their policyholders to promote risk reduction behaviors. Services can be better tailored to meet the needs of the policyholder.

Creating a digital operating model

The steps of developing a digital operating model include:

• Sense and interpret disruption.
• Experiment to develop and launch new ideas faster.
• Understand and leverage data.
• Build and maintain high-quotient digital team.
• Partner and invest for all non-core activities.
• Organize for speed.
• Design a delightful user experience.

Data is a new form of currency. It has tremendous value so those who have data and the ability to harness it have a strategic advantage in the marketplace.

Challenges 

The challenges to digitalization include:

• Standards
• Processing
• Privacy
• Security
• Energy environment infrastructure
• Life cycles
• Warranty
• Information asymmetry
• Safety and reliability
• Regulation
• Liability assessment