Insurance players ‘face bankruptcy’ in tech revolution

In as little as five years’ time, you can expect your insurance company to tailor your health insurance premiums based on the type of food you eat, find out about a break-in at your property almost as quickly as you do – and charge you a lot less for your cover.

That’s according to a new book, A Perfect Storm in Insurance, released today by insurance commentator and Massey University senior lecturer in finance Michael Naylor. In it, he says an IT revolution is looming that will shake up the insurance industry and force most operators out of business.

Changes such as the evolving ‘‘internet of things’’ – devices communicating with each other automatically online, big data, artificial intelligence and telematics – giving insurers a constant feed of data about their customers’ habits, would dramatically change what was expected and available.

‘‘Some of the elements of the disruptive technologies have been around for a while; others are new, while some are not yet useable,’’ he said.

‘‘Each of these technologies has individually, as yet, not had much impact on insurance, and this has lulled the insurance industry into complacency. This complacency is starting to crack.’’

He said new sources of data being collected about consumers would give insurers much larger amounts of high-quality information about their clients.

‘‘They will thus be able to use software to assess each client individually and offer customised policies.’’

The process of claiming would be a lot easier, he said.

‘‘Insurers will get real-time feedback from their telematics. The chips in the car will inform the insurer’s computer instantly of the crash, and the computer can assess who was to blame, inform the tow truck and book the car repair, all without human intervention.’’

In many areas, this new technology would lead to a dramatic reduction in premium income and insurer profitability, he said.

The reduction in car crash rates as a result of driverless cars, and thus claims, would lead to the virtual elimination of car insurance as a viable standalone industry within 20 years.

‘‘The insurance industry in 20 years’ time will be very different to today, and will be continuing to change at an ever-faster rate.

‘‘The big transformation will probably come from the entry of tech-savvy external firms, firms which will do things completely different – the ‘Ubers’. The majority of existing firms will probably go bankrupt due to their inability to transform themselves into a client-centred model, while survivors will be so transformed that they may be unrecognisable.’’

Insurance companies would have to face up to tech-savvy disruptors who came into the industry from other sectors and already had top-of-the-line customer interaction platforms.

‘‘There is no question that the insurance industry is far behind technologically. Millennials find that frustrating. We live in a world where if you want something you go on your phone and get it instantly. The insurance industry just isn’t like that,’’ he said.

Insurers who survived the next few years would have to change the way they interacted with customers. They could pick up a role with clients where they offered regular advice and information on everything from food to traffic conditions, as well as traditional risk protection.

But Tim Grafton, chief executive of the Insurance Council of New Zealand, which represents insurers, said the claim that insurers would be forced out of business by technological change was ‘‘nonsense’’.

He said insurers were in the business of protecting against risk and uncertainty. ‘‘If anything, that is growing in the world.’’

Grafton said insurers were aware that there were challenges to be addressed, but that was already happening. Some firms had set up laboratories specifically to consider how new technology could be used more effectively.

‘‘Insurance has evolved over many hundreds of years and can continue to evolve and thrive, although of course some will thrive more than others and some may not thrive at all.

‘‘It depends on how adept they are at changing to meet the demands that new technology brings.‘‘