The development of innovative FinTech has the potential to disrupt the global insurance and reinsurance industry in numerous ways, highlighting a range of challenges and opportunities for insurance supervisors, says the International Association of Insurance Supervisors (IAIS).
In a new report, the IAIS explores the potential disruption the global insurance industry could be challenged by as innovative FinTech solutions and approaches continue to evolve, a trend that could alter the operational fundamentals of the insurance sector.
The rise of technology and its recent focus on the international insurance industry suggests that insurance supervisors need to address a number of challenges that FinTech could facilitate, warns the IAIS.
“FinTech innovations have the potential to change fundamentally the way the insurance sector serves policyholders. Because of both the scope and pace of change, insurance supervisors must be alert to new developments and make necessary adjustments in their supervisory practices and skills,” said Victoria Saporta, Chair of IAIS Executive Committee.
The report, entitled ‘FinTech Developments in the Insurance Industry,’ finds that FinTech could reduce market competitiveness over the long term by causing traditional insurers to leave the market, which, according to the IAIS would result in more individualised solutions that could impact price comparability and also consumer choice.
Via the use of a limited number of technology platforms across the insurance industry, the IAIS warns of increased interconnectedness of the international insurance industry, while FinTech might also drive insurers to adapt their business models if profits come under increased pressure.
“In addition, FinTech may increase the focus on improving the customer experience and affect the treatment of customers, possibly creating issues of affordability of insurance products or even increased financial exclusion. It may also create issues concerning the use, ownership and protection of data,” said the IAIS.
For insurance industry supervisors the challenge of keeping apace with the rapidly evolving market landscape is expected to intensify in response to the expansion of FinTech. The IAIS highlights a number of challenges that insurance supervisors are likely to experience, which includes being able to understand new innovations and their application in order to adequately assess new solutions and business models.
Furthermore, achieving a balance between the risks and benefits of innovations in creating a landscape that fosters innovation via regulatory sandboxes or innovation hubs, will also challenge insurance supervisors, says the IAIS.
Insurance supervisors might also need to evaluate and subsequently adjust prudential regulation framework, and consider the adequacy of reporting requirements in assessing trends and also the potential increase of risk that’s connected to new technologies, says the report.
FinTech has the potential to massively disrupt the insurance and reinsurance markets of the world, and will undoubtedly bring both opportunities and challenges to re/insurance companies, industry regulators, and also insurance supervisors.
The insurance landscape continues to evolve and the pace of change seems to be increasing all the time, something that FinTech and InsurTech are expected to accelerate in the coming months and years.
