Rethinking Risk and Loss: How Digital Technologies are Disrupting the Insurance Industry

The traditional relationship between insurance companies and customers pivots on loss. Customers and insurers interact around major loss events: accidents, property destruction, illness, death. But what if this relationship could change to focus on improving a customer’s life rather than simply compensating for a loss?

New technologies are enabling insurers to help their customers better secure property, drive safely, and even live longer — fundamentally changing the insurance marketplace. Insurers that adopt these technologies now will be best positioned to innovate new business models and gain a first-mover advantage in this competitive market.

AI and Big Data in the Insurance Industry

Today’s insurers face a perfect storm of challenges. Changing consumer expectations and behaviors coupled with disruptive technologies are reshaping the insurance landscape. At the heart of these changes are Big Data and cognitive computing, which includes artificial intelligence (AI). Cognitive computing is a new computation paradigm that learns and builds knowledge from various structured and unstructured information sources. Ninety-eight percent of insurance executives believe that cognitive computing will play a disruptive role in the insurance industry, according to Deloitte Digital.

Data-driven insurance is not new. Insurers have long relied on complex calculations to assess risk and determine premiums. The problem with this data is that it’s entirely historical. The data gives insurers insight into how a customer pool acted in the past, but its predictive powers for future behavior are limited. Insurers need insight into how a customer will behave in the future — and how to mitigate risk associated with this behavior. This is where digital technologies like AI come into play. Leading insurers are using this technology to re-imagine business models, unlock new efficiencies, and create innovative products that expand their customer base.

Turning Digital Disruption Challenges Into Opportunities

1. Risk Mitigation

The challenge:
Insurers must improve the risk mitigation process, shifting from a focus on purely financial-loss compensation to physical risk prevention.

The opportunity:
Data is the “new currency” in today’s digital world, but the benefits of this data are limited without fast, meaningful processing. By intelligently and independently sifting through large amounts of data, AI enables a more secure, transparent process to accommodate risk mitigation.

2. Connected Networks

The challenge:
Insurers have significant amounts of information at their disposal, including data from connected networks such as the Comprehensive Loss Underwriting Exchange (CLUE). Yet many insurers lack the ability to quickly process this data, extract meaning, and translate this meaning into actionable insights.

The opportunity:
AI makes it easier to analyze data and identify actionable insights, which is critical to delivering the innovative products and services that will strengthen customer loyalty.

3. Disruptive Competitors

The challenge:
Disruptive competitors like peer-to-peer insurance (i.e. Lemonade Insurance Agency) and pay-per-mile insurance (i.e. Metromile Inc.) are challenging traditional business models and gaining market share among younger customers.

The opportunity:
Cloud-based solutions are easy to implement and scale across organizations, giving large insurers the agility and flexibility they need to respond to disruptive competitors.

Starting the Digital Journey

The first step in the digitization process is often adopting automation to streamline claims processing and eliminate redundant tasks. Automation, for example, can reduce the costs associated with claims processing by as much as 30 percent, according to McKinsey. Automation is just the tip of the digital iceberg; to realize the true benefits of digital transformation, insurers must consider the best way to analyze and monetize their data.

SAP is enabling insurance companies to become intelligent enterprises. SAP Cloud for Insurance uses integrated business applications with intelligent technologies, delivering breakthrough business value for insurers. SAP Leonardo further enables insurers to optimize and extend current business processes, capturing new revenue streams and transforming value chains.

For more information on how digital technologies are disrupting the insurance industry, download “The Digital Insurer: Unlocking New Business Value with Disruptive Technologies.”

Olaf Schoenfelder is global insurance IBU director at SAP.