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 Some insurers are using developments such as telematics, or social
media sources, to increase the amount of information they have about
customers to reduce claims and theoretically make insurance cheaper
for all.
Telematics uses aircraft-style "black boxes" that have been in
Formula One racing cars for years to collect data about how
policyholders drive their cars, so they can be rewarded with lower
insurance premiums if they adopt a cautious style.
But an industry that has long relied on personal contacts, the
Lloyd's of London insurance market started in a coffee house in the
17th century, has not been quick to embrace new technology or mine
vast new data sets, known as "Big Data".
The reluctance to roll out technology with the same enthusiasm as
banks and some investment managers is partly cultural, partly
financial.
"Compared to many other industries, (insurers) are still playing
catch-up. The sector has a very traditional culture." said Catherine
Barton, partner at EY.
Staff at Lloyd's, home to more than 90 trading syndicates in
London's financial district, still trundle suitcases of claim forms
for complex insurance transactions.
Function rooms in its flagship building are furnished with antiques,
while besuited underwriters swap ideas in local pubs and restaurants
when the market closes for lunch.
STATUS QUO
Lloyd's Chief Executive Inga Beale has said the industry needs to
take technology on board to maintain its role in global business.
The firm recently appointed a Chief Data Officer and Beale said the
sector needs to attract new, tech-savvy talent.
Insurers already carry plenty of data about policyholders, and have
started mining sources such as Facebook, to cut fraud or better
estimate customers' claims.
But a mass of different systems, often the legacy of firms being
swallowed up by bigger insurers, makes it hard to streamline
technology. Some firms have chosen the status quo.
"I have a very jaundiced view of the generation behind me, they are
too reliant on technology," one broker told Reuters. "I don't
believe this (face-to-face approach) will disappear."
Even if firms want to harness technology, they may be unwilling to
commit cash. Insurers are struggling to balance their books, with
bond yields at record lows and slashing the returns they make on
investing premiums.
TRENDSETTERS
A report from Morgan Stanley and Boston Consulting Group says
the first movers will reap bigger spoils.
They say a full transformation to becoming a digital company could
cut an insurer's combined ratio by 21 percentage points, in other
words making the firm more profitable. Expenses could fall by 10
percent of premiums and claims by 8 percent.
Germany's Allianz is highlighted in the report as a good example of
a traditional insurer working to enhance its digital capabilities
and transform its business model.
It is investing 400-500 million euros a year in digital initiatives
such as setting up an innovation lab to work with young companies on
Big Data, mobile, social media and sponsorship, the report said.
Others are focusing on telematics, one of the industry's brightest
innovations. Britain's RSA has a telematics product and underwrites
business for specialist telematics insurer Ingenie. Direct Line also
does telematics.
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Belgian insurer Ageas, which has a British division and writes
insurance for firms such as Tesco Bank, also underwrites Ingenie's
telematics car insurance, while Progressive is a frontrunner in the
United States.
Still, the benefits sometimes seem unclear and the use of telematics
remains low. Britain, Italy and the United States are among the most
developed markets, but penetration is 3.5 percent in Italy, 2.5
percent in Britain and just 1 percent worldwide.
The black boxes are expensive for the insurer to fit into cars, only
making it worthwhile for young or inexperienced drivers, whose
policies are more expensive. Some insurers are waiting for the cost
of the boxes to fall, or for alternatives such as mobile phone apps
or Internet-connected cars.
TOO EXPENSIVE
British insurer Aviva was one of the first to introduce telematics.
Policyholders had 30 percent fewer accidents and premiums fell by
the same amount.
Aviva has since pulled out because it was costing too much to buy
and install the boxes, but it now offers discounts to drivers using
mobile apps to monitor their driving habits.
The technology has also not yet arrived for telematics to be used in
markets beyond motor insurance.
New uses for telematics could include an oven that tells your house
insurer it has been left on, or a smartwatch that tells your health
insurer if your blood pressure is too high.
"In the next few years, we'll see a lot of change in (the way)
technology will impact pricing," said Rudi Van Delm, director for
pricing and underwriting at Direct Line.
But until that technology becomes more cost-effective, insurers
focused on retail consumers may invest more in their online presence
and use of price comparison sites.
Even with the prospect of technological advances, insurers say there
is still a need for human interaction.
Inside the "Walkie-Talkie" building, one of London's newest
skyscrapers, RSA offers its telematics-based insurance but also
provides a meeting room where brokers can mingle and do business the
old-fashioned way.
"More complex and more large-scale products are always reliant on
some form of relationship management and negotiation," said Tim
Skates, RSA's chief technology officer.
(Additional reporting by Richa Naidu; editing by Sinead Cruise and
David Clarke)
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