Digitalization allows insurers to expand their economic and societal role

Anna Maria D’Hulster
Secretary General of The Geneva Association

New digital business models that rely on big data—collected by wearables, cars and smart home devices, for example—are increasingly using machine learning techniques to derive risk insights from policyholders. These insights allow insurers to understand much better the different risks and their drivers. For example, as Munich Re demonstrated in a recent white paper, physical activity as measured by steps per day is an important predictor of mortality risk.

Such risk insights enable insurers to play a more active role as trusted risk managers, both for customers and at the societal level. For example, by sharing driving information with policyholders and by incentivising prudent driving behaviour, insurers can contribute to lowering the human and economic costs of accidents. A better understanding of risks will increasingly allow insurers to extend their coverage of risks that were previously deemed uninsurable. Furthermore, insurers play an important role in coping with the new risk landscape that is emerging in the digital economy, as illustrated by the rapidly growing cyber insurance market.

However, digitalization and the use of personal data also raise important concerns, as we have outlined in detail in our report “Big Data and insurance: Implications for innovation, competition and privacy”. Personal data could be abused. The use of large amounts of personal data may lead to discrimination, for example, and high risks may no longer be able to afford insurance. The growing importance of personal data also raises concerns about competition. Digital business models are typically characterised by strong network effects and data-driven economies of scope, which favour a “winner-takes-all” competition. With respect to accessing personal data, Big Tech companies are undoubtedly in the pole position.

If insurers are to expand their economic and societal role, they must earn the trust of consumers and act responsibly with respect to the personal data entrusted to them.