The retail insurance broking industry is facing an onslaught of new technologies with a promise of transformational change and value creation. These technologies have the potential to redefine risk transfer and risk management and reset the retail insurance broking business model and products.
This groundswell is driven by the rise of the Internet of Things (IOT) and big data which beckon a new world where risk is instantaneously measured, predicted, interpreted, and mitigated through a steady stream of information sources.
At its core, the proliferation and accessibility of information creates a foundation to reset the retail insurance broking industry. We are in a world where we now have more data and information available then we know what to do with while the curve of increasing data sources and information continues to exponentially increase. IOT has the potential to redefine the speed and frequency of how insurable risk is assessed, priced, and sold.
Let’s consider a few examples from an IOT future world.
First, auto insurance will be transformed from a world of annual policy terms that in essence “mark up the cost of accidents” to insurance offers and transactions that are made in real-time to drivers based on instantaneous data coming from geo-location, weather and traffic patterns, vehicle informatics, and driver experience. If a snowstorm is moving through Chicago at rush hour, the insurance rate would be much higher than a sunny weekend day in LA. The variable price of risk can be determined at a micro level and the buying decisions will dictate if they are willing to assume the risk.
Another example is catastrophic weather related risk. With the continued advancement in meteorology and real- time monitoring the near future could see a spot market develop around catastrophic risk during an actual event. A company could utilize excess insurance markets to buy more insurance or buy an option for additional limits during a developing situation. The data available through IOT can define pricing in real time as the storm and corresponding risk develops. This will change how capital is deployed and also transform the role of risk management during crisis situations into a model more akin to currency hedges and derivative trading.
Already today, JLT flood mapping is advancing big data and IOT through an unique flood model that aggregates government data from the last 40 years and combines with various external data sources to better model and predict flood risk at a property by property basis. This allows owners and insurance companies to identify the risk at each individual property and price the insurance accordingly. This level of detail fundamentally shifts how companies assess risk and buy flood insurance. Furthermore this insight becomes part of the operational models of companies further refining their strategic decisions and investments.
"These technologies have the potential to redefine risk transfer and risk management and reset the retail insurance broking business model and products".
The proliferation of wearable and personal technology, and the corresponding data and information, reflects yet another rapidly developing area of IOT. For instance, one of the primary challenges for risk management and mitigation is the definition of “Who or what is where?” During a crisis, it is critical that the people and assets are identified and protected. Many firms have made considerable advancement in this space, such as MOBSS, who have created technology which provides identity persistence and validation across any setting. These solutions open up a world where companies can track their people and assets in real time and using analytics better understand the implications to improve operations.
Another area of transformational change is with risk arising from International activities and IOT. In the technology-connected world, sovereignty and borders matter far less than before, the smallest company can compete and operate on the same level as the largest companies across the globe. IOT and big data begin to redefine the rules of trade and the underlying rules of risk. The ability to now view the entire system from a data perspective requires retail brokers to change their aperture and move beyond a world of localized risk to an interconnected world where each element is related and can have impact on the entire system.
For instance, the smallest of supply chain interruptions can have ripple effects across an entire ecosystem compounding a seemingly small issue into a problem that effect business income. Additionally, products use of component parts opens up new risk as they can become the access points for hackers and cyber criminals. Finally, the speed of political change is known almost immediately. Companies who can understand how this information effects the system will better respond and mitigate their risk. The interconnected world that clients operate requires the broker to mirror and have the same capabilities and reach.
Ending where we started, with the increasing expectations of customers, technology and information drive a new standard of possibilities for Retail Insurance Brokers. Clients see the potential and demand that the broker understand the tools and capabilities of what technology can provide and also require discussions that intertwine technology with the insurance broking and management process.
The future of retail broking, much like the future of the retail industry in general, requires firms to understand and harness the power of data in real-time to increase the efficiency of transactions, the relevance of product, and client satisfaction.