The digital era presents a number of challenges for insurance companies, not least in IT and data management. This blog explores some of the most pertinent IT challenges facing Irish insurance companies.
Operational Resilience
No company can totally guarantee the security of its IT systems. We cannot assume that insurers are immune to the service disruptions that have beset other industries. Both conduct and prudential regulators are sniffing around operational resilience. We will need better IT, more sophisticated governance of incidents when they occur, and multiple ways of keeping in touch with customers.
Public challenges to insurers’ use of data
Data systems salesmen routinely exaggerate the benefits of big data, particularly in industries they don’t really understand. In contrast, our regulators understate the benefits and overstate the risks. There is of course a trade-off between improved products and services and access to customers’ data. It is all too easy to expect the benefits of big data – tailored services, quick delivery, greater choice – while objecting to the data processing that makes all this possible. Insurers need to think for themselves about the ethical standards that should be expected in the industry, and then explain the consequences to regulators and customers alike.
Squeezing the middle of the value chain
The trend of obtaining services from a Managing General Agent when seeking Guaranteed Issue insurance and platforms in savings, both point in the same direction. Market participants are looking for capital light approaches to insurance. Taken to its logical end, this trend leads to a wide variety of intermediaries with direct access to customers and a much smaller number of very large international capital providers, closer in nature to reinsurers. There is little room for the traditional carrier in this model. It also definitively breaks the link between consumer protection and prudential regulation.
Dominance of large data providers
Uber has not destroyed taxis, and Airbnb has not destroyed hotels. Instead they have exposed huge levels of demand, which was not previously met. There is great potential for digitalisation to tap currently unmet needs for protection as well as to provide access to policyholders.
But who will do this? Large American data providers are unlikely to want to become insurers, if only because the returns, in such a highly regulated industry, are not attractive to them. But they can extract returns by controlling distribution from just outside the regulatory perimeter. They will also be able to offer other services linked to insurance in a way that the Financial Conduct Authority (FCA) makes very difficult for insurers to do. By the time regulators notice what is happening, they could be in a very strong position indeed.
The disappearing retail customer
Digitisation allows customers to fragment their insurance cover and choose only the bits they are really interested in. For instance, instead of comprehensive motor cover you have a pay as you drive approach (until the arrival of driverless cars ushers out personal motor insurance all together). Instead of contents insurance, customers can protect only those items they really care about or would find difficult to replace. The trends point to a world where personal insurance is a relatively low value item, increasingly replaced by a broader offering of catastrophe insurance.
Over-regulation
Last but not least, and returning to Brexit, the UK is in competition with other jurisdictions, to provide a good location in which to do insurance. Beyond a certain point, higher standards do not attract business. If conduct regulation gets in the way of easy contact with customers, they will move outside the regulatory boundaries. If prudential regulation demands too much capital, risks will be placed overseas.
Article written by Stephen Hegarty, National Sales Manager at Aspira. To find out more about how Aspira works with insurance companies, contact info@aspira.ie.
