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On 16 June 2022 RPC hosted an afternoon of talks and panel sessions on the theme of 'Technology in Insurance', the culmination of the firm's TechWeek which brings market experts and lawyers together to discuss risks and opportunities with new technologies within different business sectors.
Whilst panellists commented that the insurance industry had not had an 'Uberization' moment – when new market disruptors succeed in radically ripping up the pre-existing order with new tech-driven solutions – technology has and will continue to radically transform the insurance industry. This impact though has been more subtle than many had predicted. Although there has not necessarily been the predicted tech and data driven 'big bang' transformation of the insurance industry, there are many technology advancements and trends that are transforming insurance products and services as well as the operations of companies within the industry.
Individually these tech buzz-words – such as blockchain, AI, smart contracts, telematics, machine learning, robotic process automation and internet-of-things – flash brightly in the insurance industry's collective consciousness, taking up innumerable virtual pages of on-line commentary. Some of these may dim and even fade away, others will continue to shine, and more buzz-words will join them. It is the combination of all of these multiple technology advancements and trends that together will have the transformative long-term effect on the industry.
Where are we seeing tech-driven changes across the industry?
Technology has been a key driver for providing new insurance products and innovative services for insured customers. Both existing industry players and new insurtech start-ups have been investing in this space, developing new products, new ways of reaching customers and new digital services throughout a product's lifecycle, all enabled by new technologies.
Internal processes and innovation
Although the customer-facing side of tech-innovation within insurance is often the most heavily publicised, new uses of technology within the operations of insurers and intermediaries is no less important. They represent both great opportunities – in terms of reduced costs, better underwriting performance, and market-differentiation – but also significant risks – such as enhanced regulatory, data and reputational risks. However, it is clear that the industry is embracing technology and, although to a large extent many of the changes are incremental, they constitute a significant shift and companies who fail to keep up risk falling behind their competitors.
Data processing and analytics as well as robotic process automation are key areas where insurers are embracing new technology in their operations, but technology is also providing solutions and opportunities in other areas.
What it means for the insurance industry
It is perhaps the myriad of different tech applications within the insurance industry that has made it more resilient to disruption from any individual technology driven competitor. The recent stock market tumbles of Lemonade, for a time the darling of tech-driven insurance disruptors, along with Hippo and Root are proving that innovative technology does not automatically lead to (immediate) market success, with investors now seemingly keen to focus on underwriting results and less willing to sustain losses for market share in the way they have become accustomed to with other industry disruptors.
However, as we heard from many of the speakers at our 'Technology in Insurance' event, data and technology are the driving forces behind many of the new breed of insurance companies and are key areas for all existing market participants. Almost despite the hype, there is real value and opportunity in well-structured and applied technology and it is clear insurance companies that are open to new technology from a cultural perspective – and willing to invest in it from a financial perspective – are going to be best placed to take advantage. Given the speed that technology moves, those who are not embracing the change may find themselves quickly falling behind.
Technology will therefore drive and implement change within the insurance industry. But it will also create new risks.
Failure to comply with data protection requirements can lead to both reputational damage and significant fines – in the UK and overseas.
In addition to data protection regulations which apply across industries, insurance companies operate in the highly regulated financial services environment. Insurers and intermediaries need to make sure that their technology solutions are compatible with their regulatory requirements – such as around operational resilience, governance and fair treatment of customers.
The UK regulators are looking carefully at new technologies and what the implications may be for the companies they regulate and their customers. With this in mind, the FCA has already published specific guidance for firms outsourcing to the cloud and other third party IT services and more recently published a report (with the Bank of England) providing guidance to firms and setting out regulatory expectations of best practice when using AI and machine learning. There will be more reports, guidance and regulations as insurance regulators around with world try to keep up with changes in technology and tech-innovators need to be mindful of the highly regulated world within which the insurance industry operates.
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