From the steam-powered factories of the first industrial revolution, to mass production in the second, to the rise of digitization in the third, every advance builds upon the last.
Today, something entirely new is happening. While the first three revolutions were defined by a handful of industries undergoing rapid change, a fourth industrial revolution is emerging from an explosion of new technologies affecting nearly all industries simultaneously. Divisions among physical, digital, and biological spheres are blurring. Before, technology automated individual tasks. Today, technology is connecting – and reshaping – whole societies and economies, and changing what it means to be human.
For example, people are networking via the Internet of Things, a system designed to transfer data without human-to-human or human-to-computer interaction, from smart-home products to voice-activated personal assistants. Information is becoming more democratized and transparent through apps, wearables, internet connections, and even biometric implants. And, as a result, business decision-making has become more decentralized and rapid-cycle.
Evidence is mounting that insurance is not immune to the fundamental changes in the way we live, work, and communicate. This Fourth Industrial Revolution, also called 4IR or Industry 4.0, represents more than just a technology-driven change; it offers profound promise (and potential peril) for carriers.
Drivers of the Fourth Industrial Revolution
Insurers do not have to look hard to see a shift from simple digitization to novel combinations of interconnected technologies:
- Digital innovations such as location detection, smart sensors, augmented reality, and wearables are doing more than collecting and delivering information – they are interpreting data to arrive at recommended courses of action.
- Biometric implants and genetic and genomic advances are providing clinicians with the ability to monitor chronic diseases, detect illnesses earlier, and “manufacture” organisms and outcomes in the biological world through innovations like genome editing.
- 3D printing, autonomous vehicles, robots, self-healing or self-cleaning materials, metals with memory, and other advances are enabling inanimate objects to interact with humans in increasingly complex ways.
- Data scientists are introducing ever more sophisticated insights to predict, measure – and often monetize – human behaviors.
- Supporting it all are astonishing advances in artificial intelligence (AI) and machine learning.
Implications for insurance in this environment of rapid advancement are profound.
Exciting as they may be, however, these innovations are hardly uniformly positive. Connection and collaboration can swiftly degenerate into intrusion. The customer relationship management company Salesforce found that 54% of customers don’t believe that businesses have their best interests in mind. This may be an even bigger hurdle for insurance companies given their already low trust factor among consumers: According to one survey from IBM, only 43% of customers trust the insurance industry. Closing this trust gap requires adopting more transparent business processes that ensure customer consent and engagement in exchange for a benefit.
While insurance has been somewhat slow to react to the fourth revolution, if you look hard enough, you can start to see 4.0 strategies emerging. Based on proof points already in the market, the following six examples are strategies insurers should consider:
Target emerging segments. Insurance 4.0 is changing the nature of work, and the new employment marketplace creates new risks, along with corresponding new segments for insurers to target. For example, the peer-to-peer ridesharing company Uber teamed up with AXA in Europe to offer “partner protection” to Uber drivers (an emerging and underserved segment).
Seize on sensors. Increasingly, insurers are incorporating wearables and other sensing devices into insurance product design. Neosurance's technology allows its insurer partners to engage customers with targeted policies via their smartphones. Imagine a future leveraging smart phone data (profile, location, context, and behavior): You land in New York for a job interview; your smartphone knows your location, the purpose of your trip, and your preferences, and pushes an offer for travel insurance via a mobile app as you deplane. The potential for such virtual consumer relationship building is clear.
Predict – and prevent – unwanted outcomes. Insurance-linked wellness and eldercare programs can already improve the life and health trajectory of consumers. For example, RGA has partnered with eldercare provider K4Connect to advance technology solutions for healthy aging – monitoring health metrics, preventing social isolation, and providing personalized coaching. In so many ways, technology’s role in our health and wellness is evolving – getting smarter, more efficient, and more effective. As 4IR advances, could smart sensors in cars prevent deaths on the road? Could smart clothing reduce cycling accidents? The possibilities seem endless.
Get ready for robots. Staffing shortages are also fueling advances in robotics. Japan, ranked by Hays Global Skills Index as one of the countries with the most acute skilled labor shortage, is home to “Pepper.” Developed by Meiji Yasuda Life Insurance Company, Pepper provides information about products and services at the carrier’s branches, accompanies salespeople, and appears at insurance seminars. Robotics could offer one solution to a widening talent gap across the industry.
Engage to earn trust. While insurance products are increasingly researched online, insurers have struggled to replicate the sales effectiveness and persuasiveness of a human broker or agent. But this may be changing. “Robo-advisors” – AI-powered chatbots driven by predictive analytics and natural language processing – can communicate with prospects clearly and adapt offers to an individual’s unique needs. For example, the U.K. carrier Certua customizes products sold to fit an individual’s liabilities, assets, and life stage. Similarly, the AI-driven virtual insurance agent platform Elafris enables carriers to use popular messenger applications to engage consumers. This insurance-specific technology can help sell more policies, generate reminders to clients, and automate and simplify claims management. In the interests of transparency, it is important that AI-led decision be explainable to consumers.
Get operationally lean. While many innovations of the 4IR represent splashy customer-facing opportunities, others quietly enhance business efficiency. Consider RGA’s RiskDimensions portfolio, an approach that combines predictive models in unique ways to interpret and analyze vast amounts of information. The goal? Uncover insights that can enhance underwriting and claims adjudication operations, as well as identify growth opportunities. For example, the company partnered to develop a credit-based insurance score that is highly predictive of mortality and lapse risk and can accelerate individual or group life underwriting. This can be applied as a stand-alone product or in tandem with prescription, digital health and motor vehicle scores to further refine risk assessment and overall mortality experience.
Transitioning to Insurance 4.0
The traditional business models of old are not built to win in a 4IR world. In the past, a company amassed the raw materials and labor, designed the product, and brought it to market. In the 4IR, a new type of enterprise is appearing: the platform business. Platform businesses provide an ecosystem where producers and consumers congregate to exchange goods, services and even ideas. Seven of the largest companies by market capitalization are these types of enterprises – Alibaba, Alphabet, Amazon, Apple, Facebook, Microsoft, and Tencent – and many of the fastest-growing new enterprises are from the “gig” or self-employed economy, from Etsy to Uber. The consultancy McKinsey & Company estimates that such ecosystem businesses will account for 30% of global revenues by 2025.
To keep pace, companies in every sector must become far more nimble and responsive to change. For insurers, this means transitioning to Insurance 4.0. Data-based innovations in the Fourth Industrial Revolution are changing how we communicate, how we observe the world around us, and even how our bodies function, bringing significant opportunity for insurance to play a different, higher-value role in society.