A significant majority of insurers understand that innovation is increasingly becoming a differentiator in the global marketplace, according to results of a survey from ICMIF Supporting Member A.M. Best. The survey was carried out by A.M. Best on its rated entities on the subject of innovation. These survey results are part of an extensive Best's Special Report on innovation, titled "Insurers Agree Innovation Is Critical for Future Success."
A.M. Best says it believes innovation is needed as the insurance industry rapidly changes and new risks emerge that require up-to-date service processes and coverages. Nearly nine out of 10 respondents from more than 450 insurance companies globally said that innovation was moderately to extremely critical to their organisation's success. Key reasons for innovating varied, but most companies said they wanted to better address customers' needs (22%); to gain a competitive advantage (21%); or to realise operational efficiencies (16%). At the same time, more than half of the respondents' companies have allocated between 1% and 5% of their budgets toward innovation, while 17% of insurers have allocated more than 5%.
The use of machine learning and artificial intelligence techniques in predictive modelling for better risk selection, pricing, and claims are being incorporated at different rates across the property/casualty, life and health segments. When it comes to actual implementation, 61% have invested or are planning to invest in cloud computing, which was a major factor in the increased growth and importance of big data and continues to gain momentum ever since Amazon introduced its Amazon Web Services in 2006, while 13% have made or are planning to make investments in Blockchain.
“Insurance companies recognise that their expertise lies not in technology, but in insurance,” said Edin Imsirovic, A.M. Best senior financial analyst. “However, they also realise the power of technology to transform the insurance industry on a large scale, and have thus partnered with or invested in insurtech companies that are more attuned to the development and monetisation of new ideas.”
Survey responses regarding new technologies include the following:
- Insurers appear to be optimistic about the prospects of big data and machine learning/artificial intelligence, with 41% of respondents saying big data would have a significant impact over the next three years, followed by artificial intelligence/machine learning at 30%.
- Blockchain ranked last among the technologies insurance companies thought would have a significant impact over the next three years, at 8%, reflecting a lack of maturity compared with the other newer technologies and concerns over security and performance.
- Survey respondents expressed cautious optimism toward the Internet of Things, or IoT. More than one-quarter of all respondents thought it would have a significant impact over the next three years. However, health insurers are ahead of their peers in other sectors as they recognise the utility of preventive care and monitoring through telehealth devices and other innovative products and processes.
Other report sections focus on overall survey results on companies’ innovation efforts and plans; how respondents from each of the primary industry sector, as well as emerging markets, view innovation; how innovation may impact insurance regulation; and answers to frequently asked questions regarding A.M. Best’s innovation initiative. As a next step, A.M. Best will be developing a new criteria procedure focused on evaluating innovation and also will be reviewing where a more explicit assessment of innovation fits into Best’s Credit Rating Methodology.
A full complimentary copy of this report is available via the below link (registration required):
A.M. Best Special Report: Innovation - Trend Review