How the convergence of everything will change the industry
September 9, 2019 by Jason Contant
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The Internet of Things (IoT), the “connected economy,” and other phenomena driven by convergence will cause insurance premiums to go down, one industry analyst predicted last week at the Insurance-Canada.ca Executive Forum.
“The rate at which this is going to happen, and is happening, is a whole discussion by itself, but it is happening,” Donald Light, director of Celent’s North America P&C Practice, said Aug. 28 during a panel discussion. “What this is going to mean is that losses are going to be controlled, mitigated and reduced. And when that happens, premiums are going to do down. How far, how fast, where it’s going to happen, which part of the insurance industry, are [all] open discussions. Whether it’s three years, five years, 10 years, it’s on the board. ”
Light spoke during the session Taking Action for Your Insurance Future. He noted how a shrinking premium pie will change the business model of insurers.
From left to right: Donald Light from Celent, Brenda Rose from FCA Insurance Brokers and John Elliott from RSA Canada, speaking at the Insurance-Canada.ca Executive Forum.
For example, it means insurers may have to accept being a whole lot smaller. “A few might, but most will not; certainly publicly-owned ones aren’t going to be happy about that in terms of the shareholders,” Light said.
It may also mean insurers will have to re-define their mission – whether it’s to promote the public good, helping people avoid losses, providing adjacent services, or embedding insurance into another value proposition or service.
That said, added Light, “I don’t see the industry as not being recognizable in, say, five or 10 years.”
Rather than trying to predict what will happen in the future, one speaker said he thinks about it from a reactive perspective.
“Am I doing something that’s making me about as reactive as you can possibly be to the unforeseen future?” asked John Elliott, senior vice president and chief information officer at RSA Canada. “I will tell you, premiums in the future may go up or down because of insurance needs, or things that are available in the marketplace, and the only question I ask myself is, ‘Is the company I’m with prepared to react?
“As you see things happening, [you should] be asking yourself, ‘What are our customers’ needs and how can we deliver to those needs?’”
Light agreed that “crystal balls can be foggy and the future is uncertain.” Certainly organizations like brokerages will want to be able to react to unforeseen changes,” he said, “but do you do that?”
“What we all need to do is be prepared to change for our customers, because they have needs that have changed,” said panelist Brenda Rose, vice president and partner at FCA Insurance Brokers.
“The client that I had a phone call with this afternoon is way more concerned now about his manufacturer’s errors and omissions exposure than he is about his product liability, because that’s been his experience recently in a more litigious, cyber-oriented environment,” Rose said. “The physical risks are not as top of mind. So, if we are selling peace of mind – if that’s what we are providing for our customers, we are providing them with that security – what’s worrying them is what they will value.”
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If you have heard me speak you have likely heard me observe that “risk emanates, in part, from the unknown” and that as the world becomes more instrumented and technology advances: some of the traditional ‘unknowns’ get filled in.
At the same time, Sr Isaac Newton’s third law of motion states that “for every action there is an equal and opposite reaction”. I believe this applies to risk as well.
Where some traditional risks may be mitigated other will be redefined – and new risks will arise. Think of privacy, cyber security, fraud, and general liability to name a few.
Now that we know the “facts” about the performance of a “thing” (as in IoT) there will be clearer and more precise “responsibilities” for performance, maintenance and feasance.
Insurers already have an opportunity to better serve their clients – personal lines, commercial and financial services. They will also have arising opportunities for new services. But, in the end, traditional risk transfer via insurance will certainly remain a practical risk management technique. Who provides this form of guarantee in the future is a whole different discussion.
So, IoT is a factor in modifying risk – it’s by no means and end point.