In the coming decade, the confluence of three major technological trends will generate seismic shifts in the property and casualty insurance industry. Specifically, exponential advances in artificial intelligence (AI), the Internet of Things (IoT), and Big Data will lead to the creation of new and unconventional competitors; spawn the formation of new business models; and create a market for new insurance products.
Tesla’s announcement in the spring of 2017 which revealed it was considering offering custom coverage to its consumers best encapsulates the coming change. Tesla understands the massive amounts of data that the automobile’s sensors (IoT) are gathering can now be harnessed by sophisticated algorithms (AI) to prevent an estimated 90 percent of all accidents. In turn, the company can increase the value proposition of owning a Tesla automobile by “baking” a 90 percent reduction in insurance premiums into its annual maintenance costs instead. (Tesla is already doing this on a limited basis in China and Australia.)
Of course, Tesla isn’t the only threat to the P/C industry. Amazon’s new artificial intelligence platform “Alexa” and Alphabet’s “Google Home” are already connecting to homeowner’s alarms, sensors, and cameras. It is only a matter of time before those companies (and others) also get into the P/C insurance business, predicating their new business model on the idea that they will be able to prevent a large number of accidents from ever occurring.
One significant consequence of these trends is that on the rare occasion when accidents do happen the impact will be more catastrophic. Cyber threats to people’s sensor-ladened “smart” homes, “smart” buildings and “smart” automobiles, in particular, pose a significant future risk. Those insurance companies that can most effectively determine the probability and cost of these cyber-risks will win in the future. And I predict continued advances in artificial intelligence, supercomputers and, perhaps, even quantum computing will substantially aid the winning organizations’ actuarial models.
In the next ten years, I also expect steady progress in the Blockchain-like platforms (i.e. distributed digital ledgers) will lead to innovative new, peer-to-peer insurance models while accelerating growth in 5G wireless technology, mobile computing, 3D manufacturing and renewable energy will spur extraordinary global growth. As a result, many individuals–especially in developing regions around the world–currently not in the market for P/C insurance will become consumers as they join the middle class and come to appreciate the prudence of insuring their newly acquired assets.
Jack Uldrich is a leading global futurist, keynote speaker and author of Foresight 2020: A Futurist Explores the Trends Transforming Tomorrow.
