What is the difference between an actuary and a mafia boss?
The actuary can tell you to any 10,000 people who’s going to die in the next five years.
The mafia boss can tell you who’s going to die, when they’re going to die, where they’re going to die and why they’re going to die.
That is the effect of the internet on insurance, according to Tony Tarquini, EU insurance director at Pega Insurance.
The Bank of England has predicted the UK insurance market could shrink 41% by 2040. New
technology and greater foreseeability in risk management are driving this significant change. Insurers must now decide whether to embrace this data-driven risk management environment.
“Up until now the base premise of aggregation within insurance has been premiums of the many paying for the claims of the few. But you never know who the few are going to be,” said Tarquini. “With technology you get a much higher visibility of where those claims are likely to be, how to mitigate, manage and remove them – and not just mitigate them when they actually happen. The internet allows organisations to get data within minutes on the risks they’re insuring.”
Big data platforms create a far greater foreseeability in the likelihood of claims. This is likely to result in changes to the insurer’s relationship with the policyholder and could lead to client interaction on a more regular basis.
Tarquini explained how insurers might have to step in to manage risk according to data.
“We can look at the data and we can see a certain thing happening,” he said. “For example, somebody is away from their home and we know the house is empty because there’s no movement. We know that the back door is open, we know the front door is open and they are walking off down the street. In that situation your data says you should tell the policyholder via a media channel (a phone call or a text message) to go back and close the front door because there’s a risk you’re going to get burgled.”
He added: “Systems of detection, orchestration and response are things that insurers are going to have to build in order to have that ongoing relationship. There is a change in the interaction and relationship with the customer.”
Christopher Ling, global head of transformation consulting for Capgemini's Insurance GBU, identified “large catastrophe, environmental and flash-type risks” as an expanding market in the insurance industry.
“Risk is risk. It’s not going to go away. It’s changing in nature. It’s getting more extensive in some areas. It’s becoming more volatile in other areas.” he said.
Managing new types of risk requires insurers to embrace personalisation and “create new markets,” according to Ling.
Both Tarquini and Ling said the big question lies in whether insurers want to be involved in the developing risk management environment or whether they will leave the space open for tech start-ups and brokers.
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