From Risk Transfer to Risk Prevention: How Technology can Transform the Insurance Industry

Historically, insurance has operated on the principle of risk transfer. ?Policyholders pay premiums to insurers, who, in turn, assume the financial liability associated with specific risks. Whether it's auto, health, property, or life insurance, the underlying premise has remained consistent: transfer the risk to the insurance company and get compensated after an event has occurred.

While this model has provided invaluable protection and peace of mind, it inherently operates on reactive measures rather than proactive prevention. Today, with the advancements in new technologies such as? telematics, Internet of Things (IoT) and artificial intelligence (AI), there is an opportunity to redefine how insurance works.?

Instead of merely transferring risk, insurers can evolve their business model by providing risk prevention services to their customers. This transformation promises not only to redefine the value proposition of insurance but also to create a safer, more resilient society.

How Technology can help Prevent Losses

The proliferation of connected devices, such as smart home systems, industrial sensors, telematic devices and, wearables, means vast amounts of real-time information about our homes, businesses, vehicles and even our health is being captured.

Advances in data analytics and AI algorithms has empowered insurers to analyse these huge datasets with unprecedented precision. Machine learning algorithms can analyse patterns in large data sets and identify combinations of factors that are associated with certain loss events.

By incentivising policyholders to invest in this technology and actively analysing the data produced, insurers can proactively identify and mitigate risks before they escalate into significant losses, irrespective of the line of business.

Car (Auto) and Commercial Vehicle Insurance

Telematics devices installed in vehicles monitor driving behaviour, including speed, braking patterns, and mileage. Connected devices can also track the location of the vehicle, and integrate with the vehicle’s onboard system to receive any alerts generated such as low tyre pressure etc. Most modern vehicles have a range of sensors that detect the proximity of other vehicles, when the vehicle switches lanes etc.

This data can potentially be used to identify the most common causes of car accidents and enable proactive intervention by alerting the driver, thereby reducing the likelihood of accidents. For example reckless driving can be identified through harsh acceleration and braking or weaving in and out of traffic. Studies have found that drivers distracted by their mobile phones, children etc. have slower initial speeds and have difficulty in keeping speed variations under control which can be easily spotted in telematic data. The location of the vehicle can determine if the driver should be alerted to adverse weather conditions such as ice or fog in the area.

Residential and Commercial Property Insurance?

Smart devices and IoT technology offer property insurers a multifaceted approach to risk prevention by monitoring environmental factors, enhancing security measures, and enabling real-time data analytics. By proactively identifying and mitigating common causes of property insurance claims, these innovative solutions empower property owners to safeguard their properties, reduce risks, and ultimately lower insurance premiums through enhanced protection measures.

Some examples of technology include:

• IoT-enabled leak detection devices can be installed near plumbing fixtures, water heaters, and appliances to monitor water flow and detect a drop in water pressure indicative of leaks
• Smart smoke and carbon monoxide detectors equipped with IoT capabilities can provide real-time monitoring and alert property owners and emergency services in case of fire or gas leaks
• IoT devices equipped with geofencing capabilities can create virtual boundaries around properties and assets, triggering alerts if they are moved or tampered with

Insurers can also access real-time data on atmospheric conditions, including temperature, humidity, wind speed, and precipitation levels, and use this to trigger notifications to property owners on how to prepare for adverse weather events.

Life and Health Insurance

Wearable devices offer a promising avenue for health insurers. By leveraging real-time data, personalized feedback, and targeted interventions, health insurers can empower policyholders to make informed decisions, adopt healthier habits, and ultimately reduce the incidence and severity of common health insurance claims related to lifestyle-related risk factors.

For example, fitness trackers or smartwatches can monitor physical activity levels, including steps taken, distance travelled, and active minutes. Insurers can incentivise policyholders to meet daily activity goals through rewards programs, premium discounts, or wellness challenges.

Certain devices equipped with posture sensors or haptic feedback can alert users to maintain proper posture while sitting, standing, or exercising, reducing the risk of musculoskeletal disorders and related claims.

Wearable devices with biometric sensors, such as heart rate monitors and skin conductance sensors, can measure physiological indicators of stress. If stress is detected, integrated apps can provide real-time feedback and relaxation techniques, such as guided breathing exercises, mindfulness practices, or meditation sessions.

Conclusion

The convergence of IoT, telematics, big data, and AI is reshaping the insurance market, challenging traditional notions of risk transfer, and opening avenues for risk prevention. By embracing technology-driven solutions, insurers can transition from reactive measures to proactive interventions, thereby fostering a safer, more resilient environment.

While the journey towards becoming providers of risk prevention services may entail challenges, the potential rewards, including enhanced customer engagement, reduced claim costs, and possibly saving people’s lives, make it a transformative endeavour worth pursuing.

As these technologies evolve, collaboration among insurers, technology providers, regulators, and consumers will be crucial to realizing the full potential of a preventive-centric insurance industry.