The insurance industry is changing to “digital-first” business models that have the potential to create new value worth billions of pounds. To thrive in the industry and stay ahead of the competition, insurers must secure the technology capabilities they need, such as machine learning, advanced analytics, blockchain, IoT, and cloud native. At the same time, they will also need to compete with insurtechs who emphasise personalised offerings, premiums and coverage.

Today, the UK insurance market is the largest in Europe and the fourth largest in the world, while London is a global centre for specialised insurance. In the last 10 years, the total value of gross insurance premiums underwritten by UK insurers and reinsurers was more than €400 billion, which was at its peak before the financial crisis. Similarly, there is substantial growth expected in sectors such as Motor / Car insurance, driven by IoT and smart car developments.

Yet the UK insurance industry is struggling to adapt to all the changes. The market has been hit hard by COVID-19, mainly due to a spike in the required number of claims processed. This problem has been made worse by a decrease in the number of employees within major insurers. Companies are also expecting massive changes in the market and do not have fully fleshed-out strategies in place to deal with them. There will be a push for more pay-per-use insurance services that require a high level of digital sophistication—IoT (cameras for automatic claims assessments, drones, and other devices), driverless car insurance, and others.

Let’s look at the trends that are shaping the insurance industry and how digital technologies are driving the change.

1. Self-directed services

Self-directed services will be the biggest trend in the next five years due to their efficiency and cost savings; artificial intelligence expert systems are expected to have the most significant impact.

2. Usage-based insurance (pay-as-you-go)

Customers want insurance that fits their needs, so usage-based insurance (UBI) models are becoming more common.

3. Remote access and data capture

New data sources, methods of collection, and massive data volumes can be accessed in real-time to gain insights about risk (and loss).

4. Connected/smart car

Insurers must adapt to innovations in shared economies—car sharing and smart cars—self-driving vehicles.

5. New models of holistic advice (Robo-advice)

AI-based robo-advice supports existing advisors and/or provides direct-to-consumer solutions. Early robo-advisors offered a portfolio selection and execution engine for self-directed customers. Goal-based planning for the protection and financial goods is the next step in the development of the robo-advisor. Customers and advisors will benefit from advanced analytics that mimics future scenarios.

6. Granular risk and/or loss quantification

Robotics and artificial intelligence will be used more frequently to aid (but not replace) in calculating risk.

7. Shift from a probabilistic to a deterministic model

Insurers use real-time data monitoring and capture technology to convert their claims models from probabilistic to deterministic.

8. Connected medical health and advances

Connected health and Insurtech will revitalise life insurance with health analytics and early disease signs. The emergence of Healthtechs will create opportunities for insurers to collaborate.

9. Ride-sharing solutions

As new business models for ride-sharing, car-sharing, and other sharing economies emerge, people will need new liability and personal injury insurance options.

10. Robotics and automation in core insurance

Artificial intelligence is being used to automate core insurance functions.

11. Blockchain

Even though insurers haven’t fully adopted blockchain technology yet, new start-ups and existing proof-of-concepts (PoCs) are already showing practical use cases, such as automatic claim settlement through smart contracts, frictionless capital flow between traditional ecosystem players (agents, brokers, service providers, etc.), streamlined reinsurance and retrocession transactions, and liquidity optimization (related to capital requirements).

One of the biggest bottlenecks for adopting these trends in insurance has been exposed! The half-trillion-pound insurance industry is still supported by its subpar legacy digital infrastructure. It is stuck on a mainframe that runs in the basement of a data centre, has a limited licence and is still involved in all of the UK’s economic activities.

There is no doubt that insurance is becoming more technologically advanced. Technology trends are dramatically changing the way insurance works, creating endless opportunities. These trends suggest that the insurance sector has the potential to gain new value to the tune of billions of pounds. One of the key differentiators in the coming years will be who is the first to get their hands on a Kubernetes cluster and a modern microservices architecture. Some will bury themselves in the “new” legacy and some will adapt, survive, and thrive.

So what needs to be done?

To embrace the trends and their implications, Codification is willing to disrupt the services to help you build the tech talent, ensuring that technology can grow your business and create a governance model that is in sync with the digital platform.

Interested?

Get in touch with us to learn more!