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Insurance trends

The future in insurance (Part 2/3)

by Manuel Leiria / 2. February 2020

In the second part of the article, we highlight three aspects related to the “core” operation of insurance companies, which are the worsening of adverse selection, the decomposition of products and the new profile of human resources. In the third part of the article, to be published shortly, the remaining macro-trends in the insurance industry will be described, related to their universal character and the relationships they establish with the environment that surrounds them.

The aggravation of adverse selection

The ability to generate information from new data sources is critical for creating new growth opportunities in the insurance industry. But, at the same time, the need arises to adopt ethical behaviors in the management of customer data. The mandatory compliance with the GDPR, since May 2018, provided consumers with various protection mechanisms against abuses in the management of their personal data, such as the right to be “forgotten” in company records or the possibility of contesting the use of algorithms automated data, among others.

Currently, consumers already have a lot of information about their health status or, for example, the existence of genetic predispositions for a certain type of pathologies, which they can use when deciding the type of insurance that suits them best. It turns out that this information is not, and cannot be, available to insurers, creating an imbalance in the relationship with their customers. Thus, the assumptions that were at the origin of current risk models, especially in the fields of life and health, are no longer valid.

There is a tendency towards a worsening of the underwriting conditions for life and health risks, which allows the worsening of adverse selection to be accommodated. Despite this, the final price for customers in these lines may not be aggravated, due to advances in the meantime verified in the ability of insurers to obtain much better information from the public data available.

Decomposition of products

The decomposition of products, in increasingly simple and basic versions, will become significantly more accessible.

From the customers’ perspective, the “obligation” to purchase insurance composed of dozens of coverages that they do not want and often do not know is less and less understandable, as is generally the case, for example, in multi-risks. The fact that technologies allow the development of modular products, in which each customer can “customize” their own solution, creates competitive pressure on the insurance ecosystem that will quickly lead to the rapid spread of this type of product.

At the same time, the decomposition of insurance has contributed to the development of other types of services. Despite not being part of the traditional offer of insurance companies, these new services contribute to creating a new consumer experience for customers and to the development of new relationship opportunities with insurance companies. Examples of these new features are the alerts that prevent accidents from occurring in homes, in commercial establishments, in manufacturing units, in driving or even with the well-being of insured people.

The new professionals

The management of human resources in the insurance industry will face a set of unprecedented challenges, both critical and demanding. At the same time, three antagonistic movements are already taking place, with a strong tendency to accentuate.

From the outset, the need to recruit professionals with new skills, especially in fields such as information management and mathematical and actuarial sciences, which are crucial for the development of new competitive advantages, in all areas of the value chain.

Then, the need to retain experienced professionals, with more years of experience, who have accumulated critical knowledge about traditional risk management, and who will always be essential to ensure the “core” of the business.

Finally, the need for adaptation of many thousands of insurance professionals who perform simple and repetitive tasks, which can be performed more quickly and with fewer errors by robotic systems and “endowed” with artificial intelligence.

The enormous challenge of making these three types of movements compatible with insurance companies is further accentuated by the fact that the activities themselves are also being reconfigured, automated and specialized. It is foreseeable that, for example, actuaries, underwriters, claims adjusters or even commercials, will devote much more of their time to analyzing information, with the help of new technological and digital tools, progressively moving away from execution bureaucratic and operational tasks.

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