The insurance industry is really ready for the future?
With the emergence of new digital technologies and IoT spreading rapidly, innovation is a priority for insurance companies to keep ahead in updating their business models, gain new markets and increase profitability.
For a long time, the insurance industry experienced a period of stability and few changes. The home insurance, for example, has changed little since its inception, related to the large fire occurred in London in 1666. Now, the same technologies that are profoundly impacting the lives of all of us will also require major changes in insurance.
To succeed with these changes, is it necessary for the insurance companies to have IT and business working closely. This approach requires, first, an understanding of the impact that exponential technologies – those in which both growth performance and falling prices vary exponentially – are causing in our lives.
The concept of exponential technology was developed in the mid-1970s, when Gordon E. Moore, co-founder of Intel, wrote an article based on his industry observations concluding that the number of transistors on a processor would double on average every two years keeping the same cost or even a lower cost. The theory is known as Moore’s Law.
Exponential technologies have little visibility in the beginning. However, there is a turning point where there is a major change and it starts to grow rapidly and become increasingly popular. Smartphones are a great example: the more advanced they become more accessible they are.
Examples of exponential technologies that will be mainstream are IoT (Internet of Things) and Machine Learning. With the large-scale adoption of these technologies, many things will change for the insurance industry. Connected cars and houses, for example, will enable constant risk analysis in real time and at the same time, are vulnerable to hackers, burglary and theft attacks.
Where there is technology, there is a chance of a cyberattack. To avoid the risks related to potential attacks, you must innovate. The good news is that innovation does not always require deep pockets. Technologies like cloud, which provides a scalable and inexpensive infrastructure and machine learning, able to assist in the analysis of large volumes of data, are becoming more affordable. Combined with agile software creation methods, these technologies enable innovation in controlled steps, keeping risks under control.
To suceed with the digital transformation, executives of insurance companies need to adopt a new mindset. Above all, innovation requires planning and some common elements in more traditional management models, such as return on investment, must be relativized not to inhibit experimentation and hence innovation.
Every major transformation brings risks. To minimize them, the insurance industry must keep up and bring IT into the business. Only then the digital opportunities will materialize into actual business results.