Elevated dependency on digital infrastructure will depart many susceptible, reinsurer says
In its newest sigma examine, Swiss Re Institute finds that potential digitalization advantages throughout international locations and all through the insurance coverage worth chain are removed from exhausted.
Based on the reinsurer’s “The economics of digitalization in insurance coverage” sigma report, digitalization is a supply of recent progress, new dangers, and new efficiencies for the insurance coverage business. Digital worth creation has led to a rise in companies’ intangible belongings, together with digital information. On the similar time, elevated dependency on digital infrastructure makes such belongings extra susceptible, e.g., to enterprise interruption and cyberattacks.
Within the report, Swiss Re Institute additionally launched the Insurance coverage Digitalization Index, which tracks the progress made in 29 pattern international locations with respect to the digitalization of their insurance coverage markets. South Korea got here out on prime of the index, adopted by Sweden, Finland, and the US.
Whereas superior markets with robust bodily infrastructure and excessive web entry charges have made essentially the most progress in digitalizing their economies, China, Slovenia, and India are catching up. China, for instance, has moved up by ten locations in simply ten years. It’s because rising markets can soar straight into adopting newer digital applied sciences relatively than transitioning from legacy techniques.
“The examine clearly exhibits a optimistic correlation between resilience and digitalization. For society, digitalization is a power for giving extra individuals entry to insurance coverage and thereby closing safety gaps. For insurers, positive aspects from higher underwriting, threat mitigation and threat measurement from 2/4 digitalization of insurance coverage enhance the standard and effectivity of their work,” Swiss Re Group chief economist Jerome Haegeli mentioned.
New threat swimming pools imply extra alternatives
Digitalization of the broader economic system will even create new threat swimming pools, opening alternatives for insurers. For instance, digital expertise has facilitated sharing-economy enterprise fashions, leading to elementary shifts in operational dangers and liabilities that require modern insurance coverage threat switch options.
Sharing companies like Uber and Airbnb are more and more changing personal possession, the sigma examine mentioned. This requires a shift in enterprise combine from private to industrial strains based mostly on utilization, as private strains usually exclude protection for the industrial use of automobiles and houses. Insurers will help obtain such protection by way of modern digital threat switch options.
With the shift from producing bodily items to offering data and companies, the worldwide worth of intangible belongings – which more and more embody digital belongings – of listed firms has elevated fivefold over the previous 20 years, to $76 trillion in 2021. Near 80% of that worth stays uninsured.
Companies will want safety in opposition to digital dangers, for instance, enterprise interruption and cyber dangers, in addition to the rising legal responsibility dangers associated to AI. Cybersecurity is a key concern for companies globally, as mirrored by the speedy progress in demand for cyber insurance coverage; Swiss Re Institute estimates international cyber premiums will attain $16 billion in 2023, up 60% from 2021, and $25 billion by 2026.
Digital expertise permits insurers to assemble and course of giant units of information utilizing related gadgets, information analytics, and machine studying. This may permit extra holistic and correct threat assessments and higher pricing of dangers. Digital options also can automate standardized duties, akin to information assortment and evaluation for underwriting, driving down prices and finally resulting in decrease premiums. Insurers’ digital transformation tasks are concentrating on 3% to eight% enchancment in loss ratios and financial savings of 10% to twenty% in different elements of the worth chain.
“Regardless of the speedy digital transformation of the insurance coverage business, accelerated by latest developments in cutting-edge expertise, we nonetheless see important potential to make insurance coverage extra accessible and reasonably priced for customers. Our business ought to see this as an encouragement to proceed investing in modern options and adapting to rising dangers,” Swiss Re Group chief digital and expertise officer Pravina Ladva mentioned.
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