miércoles, 6 de julio de 2016

An insurance sector for the #digital era

We can define an insurance policy as a risk-transfer mechanism that ensures full or partial financial compensation for the loss or damage caused by events beyond the control of the insured party. The digital revolution of society and economy is introducing both new risks and new tools for monitoring risks. As a consequence, big changes in an industry as ancient as the human being are about to happen. Some of these changes can be appreciated already.

The main new risk brought by the digital revolution is our growing technology dependence. Companies try to establish protection measures against threats for their digital assets. Cybersecurity is a flourishing industry valued in $75 billion in 2015 and it is expected to be worth $170 billion by 2020. Nevertheless, whatever the protection deployed a failure could happen. The number of security and data breaches are also growing and, as a consequence, the laws defining the economic liabilities for the companies who have not deployed the right measures.  These new kind of economic liabilities have created the new cyber insurance sector. Only in the US, the businesses spent more than $2 billion for cyber insurance in 2014 and it is expected the market grows up to $6 billion by 2020

Beyond the basic insurance policies that aims to ensure compensation for the failure of the IT security measures, the complexity of some digital products will require an specific type of policies. That is the case of driverless cars and other kind of robots. The amount of different components that collaborate in providing the final service to the consumer, demands to set a clear divsion of responsibilities in case of failure. Who is accountable for it? The hardware? The AI software? The telecommunication network? Some driverless car insurance policies have already be launched in some countries, like United Kingdom, for the basic autopilot functionality already in place in high-rank cars (e.g. auto-parking). However, a bigger debate should be opened to develop a future-proof legislation, whatever evolution of technology happens.

The sharing economy is offering also new business opportunities to the insurance sector. With the new services of the digital economy also appear new grey areas of responsibilities. In the medium term, these grey areas could both inhibit consumers from using sharing economy services as private persons from providing services and products. So platforms are turning to the insurance sector as strategic partners to bridge this potential gap of trust. An incipient market for sharing economy insurance products is under development, mainly based on start ups that offer this kind of products like "Take Slice" or "Safe Share". Even some of them are also offering products based on the sharing economy paradigm, as Lemonade.

Not only new business opportunities are appeared for the insurance sector in the digital era. IT are providing the sector with new tools to be more efficient and productive and develop more personalised products. Telematics provide more data that could be handle in a more efficient way with Big Data technologies and smart phones the opportunity to build a stronger relationship with the new breed of customers composed of digital natives. For instance, it is forecasted that "remote healthcare monitoring will become as common as internet banking " in the medium term, it is not difficult to imagine health insurance products with different designs depending on your sport practices or feeding habits. The potential for insurance products based on remote monitoring is behind the investments of insurance companies in Internet of the Things industry.

Every day, each European spends €5.4 on life and nonlife insurance combinedIn 2014, U.S. insurance companies earned approximately $338 billion in profitsThe digital technology paved the way for new kind of insurance products and more appealing versions of the existing products. The way we face daily risks is about to change,  jointly with the big disruption of another big economic activity.

1 comentario:

  1. Even when the IT sector is a new source of profit for the insurance sector, there are many issues that could lead to think things twice.

    First of all, the insurance sector works because they earn enough money to invest in safe assets, earn the yields, and then pay their commitments as insurance company.

    Nowadays, macroeconomic conditions do not allow them to innovate. When the 10 year Gobernment Bond in Germany yields 0%, in Switizerland - 0.4 %... and son on, is difficult for the sector to think about something different than surviving.

    There is also a legal problem, liabilities and legal compensations are not now well stablished, so uncertaninty is quite high to develop mathematical models that could give, with a high degree of certainity, the real prize of this kind of insurance.

    Summarizinng, even when the oportunity is there, there is a lack of macroeconomic and legal conditions that prevents the insurance sector to invest in the cybersecurity field.


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