According to Moody’s, the rapid take-up of digital technology by businesses and consumers during the pandemic underlined its critical importance for the insurance sector.
The company’s research showed that insurers increasingly use data from social media and devices connected to the internet to gain actionable insights into policyholder behaviour, which supports underwriting margins.
However in the long term, interconnected devices, such as driverless cars and wearable tech, will make certain common accidents and injuries less frequent, reducing demand for some traditional insurance products.
The spread of connected devices also brings new risks, notably those related to cybersecurity and software malfunction.
However, these will be difficult for insurers to cover, as multiple interconnections between smart devices will increase event correlation, making severe losses more likely.
Moody’s expects tech-driven disruption to be relatively gradual, giving innovative players time to adapt. Incumbents will nonetheless need to foster a culture of continuous innovation, and build agile digital-led operations and strong data capabilities, to pull ahead of peers and become valuable partners to adjacent players.
Helena Kingsley-Tomkins, VP-Senior Analyst at Moody’s commented: “To remain competitive, insurers may seek distribution partnerships with Big Tech groups, or with dominant players in adjacent sectors such as car manufacturing.
“But insurers risk profit margin erosion if they become reliant on their partners to generate sales and gradually lose control over their customer relationships. In a more severe scenario, Big Tech players or auto manufacturers may even start providing insurance themselves, displacing incumbents from some profitable markets.”