Mitigating risk with emerging technology

Anticipation and navigation of risk is what the insurance industry has always been about. Any failure to assess risk will at some point become expensive for the insurer. Similarly, when the worst actually does happen, insurers need to stay on top of the consequential actions and processes so the resultant costs don’t spin out of control.

With profitability key to remaining viable in this fiercely competitive industry, insurers are on a continual search for better and more efficient ways of predicting and reducing the impact of risks, in order to offer the right cover for their customers; and with the number of risks growing, how can insurers leverage technology to help?

A wide range of insurance verticals are impacted by numerous threats. Some age-old factors, such as fire or theft, are already comprehensively accounted for, but the risk landscape is constantly changing, not just with wars but also with new fields such as cyber suddenly becoming necessary to insure while constantly evolving. Rising global temperatures are seeing other new issues emerge. In fact, recent research showed that two-thirds (66%) of experts saw extreme weather as the risk most likely to prompt a material global crisis in 2024, and it’s easy to see why. While 2023 was the hottest year on record, 2024 has the potential to be another record-breaking year. Insurers are having to navigate the mounting costs of emerging threats such as the impact of extreme weather and find more effective ways to manage these developing risks.

By embracing technology and data-driven insights, insurers expand their ability to be well informed and also notify customers of risks, to help them avoid loss in the first place. Here are three of the most important areas where new connected devices and proactive communications technology are transforming the insurance industry.

Data-driven risk assessments: Wearable devices
Wearable devices and health trackers play an important role in supporting people with their health goals. Previously, life and health insurers calculated premiums by using basic physiological data, such as height, weight, and smoker status to assess mortality risk. Now, Internet of Things (IoT) devices can leverage a vast range of outputs, such as activity levels and sleep metrics, as well as a variety of health measurements such as heart rate, blood oxygen levels and blood pressure. This rich, granular information can enable personalized life insurance policies to be written, based on an individual’s lifestyle, with health metrics used as additional inputs to continuously assess a person’s mortality risk.

Personalized underwriting, using IoT data, can lead to fairer, more transparent pricing models for policyholders. For example, customers who lead more active lifestyles, as tracked by wearable devices, can be rewarded with lower premiums. A personalized approach benefits the customer and the insurer: policyholders are encouraged to manage their own risk more effectively and in return the customer receives incentives for acting in their own best interests.

Enhanced customer engagement: First notice of loss
In another mature field, vehicle insurance, IoT-enabled telematics devices, more commonly known as ‘black boxes’, can provide insight into driver behavior and record information such as speed, acceleration, braking, distance and the time of day a vehicle is driven.

In addition to providing driving feedback and GPS tracking, telematics devices are also able to play a crucial role during customer interactions, including the all-important ‘first notice of loss’. In the case of a road traffic collision, black boxes can detect a crash and automatically notify the driver’s insurer, as well as emergency services. This enables the insurer to take proactive control of an incident, rather than finding out about it days later after a local tow-truck driver has effectively run the show and made all the key decisions. At the same time, this dynamic approach is demonstrably better for the customer, providing a reassuring sense of support and control in an otherwise worrying and unfamiliar situation.

The use of collected data also lessens the likelihood of fraud and encourages regular maintenance and safer driving. One study found that monitoring driver behavior can reduce overall claims cost by up to 50%, as well as bringing down the overall number of claims. When integrated into an insurance policy, telematics devices enable insurers to provide usage-based insurance (UBI), also referred to as pay-per-mile, customized based on the driver’s habits.

Proactive loss prevention: Weather notifications
Extreme weather impacts a wide range of insurance risks. Proactively communicating with customers to provide the latest information and guidance is beneficial for all parties, helping policyholders stay safe, protect their assets, and reduce losses. Now insurers are leveraging modern technologies to provide proactive communications that can notify customers in advance of extreme weather conditions, with alerts sent directly to a customer’s mobile or smart device.

Catastrophic weather events not only pose a significant financial risk for insurers – they also emphasize the need for proactive measures to anticipate and mitigate the impact on policyholders. The surge in extreme weather events, from devastating hurricanes to record-breaking wildfires, has increased the burden on insurers, with natural disasters costing nearly £75bn in losses in 2023 (in excess of $95 billion).

Policyholders can be kept up to date with advanced weather notifications and alerts and given advice on how to remain safe if they are likely to be impacted by a major weather event. Weather forecast data can be automatically matched to policyholder addresses, to automatically notify customers of only relevant adverse conditions, and let them know what to do to keep themselves and their properties safe. Notifications can be as simple as an email to advise customers of a potential storm, or emergency SMS messages alerting policyholders to more urgent local wildfire sightings.