Latest Sigma study from the Swiss Re Institute focuses on the threat posed by a digital risk protection gap.

digital face

The insurance industry should be increasing its product innovation and research and development (R&D) efforts to keep pace with emerging technologies and digital risks that will need to be transferred into the sector, according to Swiss Re’s latest Sigma report. 

Digitalisation is a source of new growth, new risks and new efficiencies for the insurance industry, noted “The economics of digitalisation in insurance”, released by the Swiss Re Institute.

Digital value creation has led to an increase of firms’ intangible assets, including digital data, the study noted.

At the same time, increased dependency on digital infrastructure makes such assets more vulnerable, for example to business interruption and cyber-attacks.

Potential benefits across countries and throughout the insurance value chain “are far from exhausted”, Swiss Re argued.

“The study clearly shows a positive correlation between resilience and digitalisation,” said Jerome Haegeli, Swiss Re’s group chief economist.

“For society, digitalisation is a force for giving more people access to insurance and thereby closing protection gaps. For insurers, gains from better underwriting, risk mitigation and risk measurement from digitalisation of insurance improve the quality and efficiency of their work,” he added.

New index

The report introduces a new “Insurance Digitalisation Index”, which the Swiss Re Institute uses to track the progress made in 29 sample countries with respect to the digitalisation of their insurance markets.

South Korea came out on top of the index, followed by Sweden, Finland and the US.

While advanced markets with strong physical infrastructure and high internet access rates have made most progress in digitalising their economies, China, Slovenia and India are catching up.

China, for example, has moved up by ten places in just ten years, according to the paper.

This is because emerging markets can jump straight into adopting newer digital technologies rather than transitioning from legacy systems, the reinsurer said.

New risk pools

Digitalisation of the wider economy will also create new risk pools, opening up opportunities for insurers, the paper argued.

For example, digital technology has facilitated sharing-economy business models, which have resulted in fundamental shifts in operational risks and liabilities that require innovative insurance risk transfer solutions.

Sharing services like Uber and Airbnb are increasingly replacing private ownership, Swiss Re claimed.

This requires a shift in business mix from personal to commercial lines based on usage, as personal lines typically exclude cover for commercial usage of vehicles and homes, according to the reinsurer, adding that insurers can help achieve such coverage through innovative digital risk transfer solutions.

With the shift from producing physical goods to providing information and services, the global value of intangible assets – which increasingly include digital assets – of listed companies has increased fivefold over the past 20 years, to $76trn in 2021, nearly 80% of which is uninsured, the paper noted.

Cyber premiums to hit $16bn for 2023

Firms will need more protection against digital risks, Swiss Re emphasised, pointing to business interruption and cyber risks, plus emerging liability risks related to AI.

Cyber security is a key concern for businesses globally, as reflected by a rapid growth in demand for cyber insurance; Swiss Re Institute estimated global cyber premiums will reach $16bn in 2023, up 60% from 2021, and $25bn by 2026.

Digital technology allows insurers to gather and process large sets of data using connected devices, data analytics and machine learning. This will allow more holistic and accurate risk assessments and better pricing of risks, the reinsurer suggested.

Digital solutions can also automate standardised tasks, such as data collection and analysis for underwriting, driving down costs and ultimately leading to lower premiums. Insurers’ digital transformation projects are targeting a 3–8 percentage point improvement in loss ratios and savings of 10–20% in other parts of the value chain, the paper noted.

For consumers, online marketplaces lead to greater price transparency, present multiple insurance products and providers in a single place and allow customers to seamlessly complete the onboarding process online making insurance more accessible and affordable.

Aside from distribution, investments in insurance technology have shifted towards efficiency gains and improving underwriting and claims, the reinsurer suggested.

“Despite the rapid digital transformation of the insurance industry, accelerated by recent advancements in cutting-edge technology, we still see significant potential to make insurance more accessible and affordable for consumers,” said Pravina Ladva, group chief digital and technology officer at Swiss Re.

Our industry should see this as an encouragement to continue investing in innovative solutions and adapting to emerging risks,” Ladva added.

Key takeaways

  • Digitalisation enables insurers to monitor, mitigate and price risks more efficiently, allowing for more tailored insurance solutions that can help close insurance protection gaps.
  • Insurers are targeting a 3–8 percentage point improvement in loss ratios and savings of 10–20% in other parts o the value chain through digital transformation.
  • Growing business interruption and cyber risks emerge as flip side of reliance on digital infrastructure.
  • Swiss Re’s new Digital Insurance Index shows advanced economies with strong infrastructure and R&D are better prepared for digitalisation of their insurance sectors, but emerging markets should benefit from faster catch-up growth