What are the insurance industry future trends that will shape the landscape for years to come? In one word – digital. Of course, there are other insurance industry future trends that will have a significant impact – from demographics to regulations, from technology to unexpected competitors. The emerging technology and changing demographics will escalate the pace of change experienced by the insurance industry. The evolving nature of risks combined with shifting principles will make substantial demands on insurers to create customized products that meet the needs of insurance buyers as opposed to products invented by insurance underwriters based on an identified risk.
Any systemic technological change will need to integrate with increasingly complex regulations and will simultaneously require robust efforts to protect privacy, increase security, reduce fraud, and fight cyber crime.
Managing the financial risks of insurance
The evolving nature of threats combined with shifting principles will make substantial demands on insurers to create customized products that meet the needs of insurance buyers as opposed to products invented by insurance underwriters based on an identified risk.
Underwriters will require finding suitable alternative investments in 2017, to offset low-performing asset classes. There is the need for contingency planning, and risk offset, for large-scale changes in national economies, such as those caused by massive and sudden U.S. dollar devaluation.
The strategy used by big insurance companies to create high-profile mergers faces intense legal and political opposition. Another major risk element for the insurance industry is the impact of increases in severe weather disasters caused by global warming.
The following issues and ideas will influence and shape the Insurance Industry Future Trends:
- Artificial Intelligence
- Cyber Crime and Fraud
- Industry Disruption
- Life Expectancy
- Meta Data Analysis
- Privacy and Security
- Weather Disasters
Insurance Industry Future Trends Summary Overview:
Artificial intelligence (AI) is an insurance industry trend that can be game-changing. It has applications in the insurance industry to create Information Technology (IT) processes that have little or no need for human intervention. These AI-based systems improve underwriting efficiency.
After a period of intense machine learning, during which there is the review, categorization, and analysis of massive amounts of data, AI-based systems consistently make statistically better underwriting decisions than humans do. AI applications also perform as human-enhancement tools, which makes it easier for people to make better decisions. AI is used in new product development, legal compliance, and regulatory management.
“Automatics” includes many things that operate without needing human intervention or cooperate with human operators to extend human activities in some enhanced way. As far as Insurance Industry Trends go, automation may have some significant implications for insurers. Automatics will increase in use during 2017 in many areas that affect insurance risk and claims to process.
Examples of automatics include:
- Autonomous (self-driving or driver-assisted) vehicles.
- Survey drones, such as those used to get aerial photos of flood damage. These drones allow insurers to process legitimate claims more quickly due to rapidly acquiring photographic proof as evidence of the injuries.
- Wearable IT that monitors human bodily functions such as heart rate, blood pressure, etc. and automatically sends the information to healthcare providers
- Telematics that allows risk mitigation by following people, behaviors, vehicles, and the Internet of Things (IoT), by increased security surveillance, geo-positional tracking of locations, and the automatic transfer of operational data and data about accidents.
Cyber Crime and Fraud
If the growth in cybercrime continues at the same rate, the cost of cyber crime in 2016 will be $18.7 billion, and in 2017, it will exceed $22.7 billion annually.
No discussion on insurance industry future trends will be complete without delving into cyber security. The Ponemon Institute Cost of Cyber Crime Study states that the cost of cybercrime in America was $15.42 billion in 2015, up from $12.69 billion in 2014, which was a 21.5% increase. If the increase in cyber crime continues at the same rate, the cost of cyber crime in 2016 will be $18.7 billion, and in 2017, it will exceed $22.7 billion annually.
In the future, insurers will find themselves increased targets for the cyber crimes of insurance fraud, ransomware, and blackmail.
The twin demographic events – baby boomer retirement and the advent of the millennial generation – is not just one of the insurance industry future trends: It is a defining moment for what’s next for the entire society. The “aging” of America, which is happening now, as the baby boomers become older adults, results in changing insurance needs. Demographics is one of the insurance industry trends which can be beneficial. There are more opportunities to sell them long-term healthcare policies, new types of auto insurance policies, and for some in retirement, more travel insurance.
Millennials, which are currently the young adults from 18 to 34-years old, are coming of age. Millennials need much additional insurance coverage as well as products, as they get older. Because of the Obama care requirements, almost all of them are getting healthcare. A major opportunity in 2017 exists for insurers to capture significant market share of Millennials by using innovative marketing, especially mobile apps and social media, which caters to this new generation.
Insurance industry disruption is likely to come from increased efforts by those not presently in the insurance industry. Many substantial, technology companies want to market insurance to consumers using the Internet, mobile apps, and with peer-to-peer insurance systems. Google tried and failed to sell auto insurance online using Google Compare. Regardless of Google’s failure, many other attempts to sell insurance online and using mobile apps are likely to cause an industry disruption for insurers not embracing the trends.
Peer-to-peer insurance is a form of group insurance created by insurance policy holders that all have the same well-defined personal risks and accept the same insurance policy terms. The groups pay premiums into an insurance pool, used only to pay claims by its members. The claims covered may be for all the risk or only for part of the risk, with the other part insured by major insurance carriers.
Peer-to-peer insurance is a form of group insurance created by insurance policy holders that all have the same well-defined personal risks and accept the same insurance policy terms.
An attractive example of peer-to-peer insurance is having an insurance policy from a major insurance underwriter with a large deductible and insuring only the deductible portion by using peer-to-peer insurance. This strategy gives full insurance coverage to the group members, combined with substantial cost savings. Insurers should expect industry disruption like this to increase in 2017.
Life Expectancy Increase
The Center for Disease and Control (CDC) reports the average lifespan of Americans is now 78.8 years, which is up significantly from the past. This actuarial change affects insurance underwriters in the life insurance and annuity business, especially those paying out monthly benefits to persons insured for life. The value of viaticals (life insurance sold for more than its cash surrender value) also will reduce in years to come due to this trend.
Meta-Analysis of Massive Amounts of Data (i.e. Big Data)
Insurers will benefit from more analysis of metadata in 2017 regarding loss reduction and discovering profitable underwriting opportunities. Artificial intelligence searches of this metadata are already producing positive results.
Privacy and Security
The privacy of personal data is a key concern that insurance underwriters continue to take very seriously. There is the general need to protect the privacy of insurance records to avoid liability for misuse of the information. There is the particular need under the HIPAA regulations to protect the privacy of personal records in the health insurance sector. Insurers that do a poor job of protecting privacy face increasing liability risk regarding lawsuits, settlements, and fines.
Product and Services Innovation
The new insurance marketplace for 2017 offers many opportunities for innovation in goods and services.
- Specialized insurance for niche markets, such as insurance for drivers utilizing a vehicle-sharing service.
- Subscription insurance offerings that can easily be turned on and off for temporary insurance needs.
- A mobile application that features self-service methods for both insurance product selection and claims processing with process transparency. This innovation offers immediate underwriting decisions and premium pricing in real-time (using AI to make decisions) and the ability of those who are insured to upload photos, video, and data in support of claims, combined with faster claims processing.
Regulations will increase in complexity in 2017 and undergo continual change (the legal changes in the UK from the Brexit vote is an example) when insurers operate in global environments.
The trend towards large mergers of the leading insurance carriers faces legal and political challenges in America. There is a possibility of big insurance companies being “broken up,” and facing restrictive legislation under each new presidential administration.
Weather Disasters Increase
If you believe in climate change or not, it is evident that the weather extremes are here to stay. Weather events are one of the insurance industry future trends that will impact entire societies at large. The Center for Climate and Energy Solutions reports a notable increase in extreme weather and climate change. Slatest says a cluster of eight, major, 500-year disasters (events predicted to happen one once in every five hundred years), occurred during the twelve months before August 2016.
Sometimes, clusters of events, each one with a small probability, arise in statistical analysis. If an event chain continues, it signifies a major trend change and not just a one-time probabilistic anomaly. Insurers that issue policies covering this type of weather disaster risk may face extraordinary losses from these claims in 2017.
The insurance industry future trends are exciting as well as scary: Major disasters, cyber crime, insurance fraud, security breaches, and privacy violations will increase. Taking steps to mitigate the potential damage from these threats will become an imperative for insurance industry executives.
In spite of these warnings, the future could be a good period for the insurance industry, because of the new opportunities to sell insurance products as the Millennials become adults and because of the demand for new, customized insurance products. Insurers who develop new offerings that are consumer-driven, rather than protection that is product-driven, will have more success in the future. Regulations will continue to increase in complexity and be burdensome. However, artificial intelligence will help manage compliance.
Insurers that have been reluctant to embrace technological advancements leave the opportunity open for insurance industry disruption by an outside group that sees insurance in a new way. It is very conceivable that a peer-to-peer insurance system of some significance that sells insurance as a subscription, on a pay-as-needed basis, may arise to prominence in the future.
What is your perspective on the insurance industry future trends? Please feel free to share your ideas and thoughts.