How new waves in technology will impact the future of insurance

Expanded cognitive and “edge computing” technologies will have a high—yet erratic—impact on insurance business models.
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Decision-making for an uncertain future

Scenario consideration reveals some no-regret plays for insurers that should secure a seat at the table no matter the outcome—and no matter which tables end up ultimately handling the business of risk management.

Anticipate the effects of technology trends by planning ahead

Ever since Greeks consulted the Oracle of Delphi before undertaking a war or business venture, fortune tellers and soothsayers have done a brisk business. Whether in our personal lives or in our business dealings, we would like to know what will happen so we can be prepared. These days, predictions have shifted from magical to scientific, yet, as the old Danish proverb goes, “Prediction is very difficult, especially about the future. In this executive report, we attempt to look into the crystal ball anyway—to help insurers prepare for the future.

This report is based on a series of insurance and CxO studies conducted by the IBM Institute for Business Value over the past few years, in combination with a number of informal conversations and discussions with subject matter experts and insurance executives.

We look at two key technology waves—cognitive computing and systems decentralization—that will have significant impact on the future of business across industries and that will affect insurance companies and their customers. However, considerable uncertainty surrounds their adoption pattern, and so we will consider scenario planning regarding the various potential outcomes of these two waves:

1. How will cognitive technologies be deployed—as utilities or as proprietary tools?

2. Will operations and decision-making happen on “the edge” in distributed models, or centrally in common processes?

The answers to these questions will impact value chains across industries and influence how individuals and organizations interact, how they view risk, and what their future insurance needs will require:

  • In “the swarm economy,” self-organizing and intelligent distributed systems strongly compartmentalize and localize risk
  • In “central intelligence,” risk prediction becomes highly specialized as expert systems augment humans to optimize sales, service, and claims decisions
  • In “the Internet of Everything,” instrumented systems place high emphasis on risk measurement, management, and feedback
  • Finally, in “survival of the fastest,” cognition and edge data become an arms race, with deep investment competitors building insurmountable leads.

We will then discuss logical next steps for insurers to navigate cognition and distributed computing, along with some “no-regret” moves that will help insurers prepare for the future, regardless of outcomes.

Four possible futures

For a number of years, we have tracked the main forces that concern C-suite executives. The priorities for insurance leaders today are quite clear, with the top three factors being, by a large margin, regulation, market forces, and technology.

Technology, especially, used to be perceived by insurers as a means to an end, a tool to cope with changes in markets and changes in regulation. But insurers have increasingly made technology integral to their products and business models. Technology has become both a threat to enable new industry entrants, as well as an opportunity to extend insurance across traditional industry boundaries.

As an example, consider the potential impacts of an in-progress technology shift: the move to autonomous or semi-autonomous driving. Once autonomous driving becomes more commonplace—and examples are projected to hit the market in 2020—it will have significant ripple effects on a number of industries. This will affect insurance both directly and indirectly.

The rise of technology concerns means CxOs must look into the future to build competitive advantage. What good does responding to a hard market do when the industry restructures under your feet? CxOs, now more than ever, need to future-proof their businesses. To do that, they need a longer view. How will the world look in 2025, and what does that imply for the insurance industry?

In our opinion, two technological trends, in particular, will have a high impact on the future of business across industries: the rise of cognitive computing, and the increasing potential for decentralization of systems and decision-making.

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Additional content

Meet the authors

Mark McLaughlin, General Manager, Insurance, IBM Technology Global Sales

Christian Bieck, Europe Leader & Global Research Leader, Insurance, IBM Institute for Business Value

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Originally published 01 March 2017