INNOVATION AND
INSURANCE
Impacts of innovation on insurance
Key
objectives
By the end of the presentation
the audience should be able to:
• Define innovation
• Define insurance
• Evaulate the impacts of
innovation to insurance
• Highlight the advantages and
disadvantages of insurance to the
economy
• Determine if there is need for
growth in the insurance sector
• Indentify under researched
areas withing insurance sector
What is Innovation
• Innovation as an outcome- "the result of creative
thinking, problem solving and experimentation,
leading to new products, services, or business
models".(Devilat et al.,2012 p.5)
• Innovation as a process: The Organisation for
Economic Co-operation and Development defines
innovation as " the implementation of a new or
significantly improved products, process, or method"
(OECD, 2019 p.15)
What is Innovation
• Traditional Definition:Insurance is a contract
between two parties where one party (insurer)
agrees to indemnify the other (policyholder)
against financial losses due to unforeseen events
(Swiss Re, 2019).
• Risk Management Perspective: Insurance is a risk
management tool that transfers risk from an
individual or organization to the insurer, providing
financial protection against potential losses
(Insurance Information Institute, 2019).
Types of Insurances
Insurance covers
• 1. Life Insurance
• 2. Health Insurance
• 3. Property Insurance
• 4. Liability Insurance
• 5. Auto Insurance
• 6. Business Insurance
• 7. Disability Insurance
• 8. Long-Term Care Insurance
Impacts of Innovation on
the insurance sector
Positive Impacts Negative Impacts
• 1. Enhanced Customer Experience: • 1. Disruption of Traditional Models:
Personalized policies, streamlined New entrants, changing consumer
claims processing, and omnichannel behaviors, and reduced premiums.
engagement.
• 2. Cybersecurity Risks: Increased
• 2. Increased Efficiency: Automation, AI- exposure to data breaches and cyber
powered underwriting, and reduced attacks.
administrative costs.
• 3. Regulatory Challenges: Keeping
• 3. Improved Risk Assessment: Data pace with evolving regulations and
analytics, telematics, and IoT enable
standards.
more accurate risk evaluation.
• 4. New Business Models: Usage-based
• 4. Talent Gap: Attracting and retaining
insurance, peer-to-peer insurance, and skilled professionals in innovation and
insurtech partnerships. technology.
• 5. Competitive Advantage: Innovators • 5. Dependence on Technology:
gain market share, differentiation, and Vulnerability to system failures and
brand recognition. technological obsolescence.
Advantages and
Disadvantages of insurance
Advantages Disadvantages
• 1. Risk Transfer: Insurance transfers risk from • 1. Cost: Insurance premiums can be
individuals to insurers, providing financial expensive.
protection. • 2. Complexity: Insurance policies can be
• 2. Financial Security: Insurance ensures financial complex and difficult to understand.
stability during unforeseen events. • 3. Limited Coverage: Policies may have
• 3. Peace of Mind: Insurance provides exclusions, limitations, and deductibles.
reassurance, reducing anxiety and stress.
• 4. Administrative Burden: Insurance claims
• 4. Protection of Assets: Insurance safeguards and paperwork can be time-consuming.
assets, such as homes, businesses, and vehicles.
• 5. Dependence on Insurer: Policyholders
• 5. Compliance: Insurance fulfills legal and rely on insurers' financial stability.
regulatory requirements.
• 6. Investment Opportunities: Some insurance
• 6. Lack of Customization: Policies may not
policies offer investment components. fully address individual needs.
• 7. Tax Benefits: Certain insurance premiums are • 7. Inflation: Inflation can reduce policy
tax-deductible. values.
• 8. Pooling Resources: Insurance pools resources, • 8. Cancellation Risks: Insurers may cancel
spreading risk across policyholders. policies.
Under-researched areas in
insurance
The insurance industry has several under-researched areas, including:
• 1. Climate change risk modeling
• 2. Cybersecurity risk quantification
• 3. Sharing economy and peer-to-peer insurance
• 4. Artificial intelligence and machine learning applications
• 5. Microinsurance and financial inclusion
• 6. Regulatory frameworks and sandboxes
Addressing these areas through research and development can enhance the industry's resilience,
relevance, and effectiveness, leading to:
• 1. Improved risk assessment
• 2. Innovative products and services
• 3. Enhanced customer experience
• 4. Increased financial inclusion
• 5. Effective regulation
• Collaboration among insurers, researchers, technologists, and regulators is crucial for advancing
knowledge and addressing these under-researched areas.
References
• Swiss Re. (2019). Sigma Study: World Insurance Market Trends.
• OECD. (2019). OECD Insurance Market Trends.
• Insurance Information Institute. (2019). Insurance Handbook.
• McKinsey: Insurance 2030
• Deloitte: 2020 Insurance Outlook
• PwC: Insurance 2020
• OECD: Insurance Market Trends
• Insurtech reports from EY, KPMG, and Willis Towers Watson
• Deloitte. (2019). 2020 Insurance Outlook: Navigating the Road Ahead.
• Davila, T., Epstein, M. J., & Shelton, R. (2012). Making innovation work:
How to manage it, measure it, and profit from it. Pearson.
• OECD (2019). OECD Science, Technology and Innovation Outlook 2018.
Paris: OECD Publishing.
