Digitalisation can cut insurer loss ratios 8 points: Swiss Re
Reinsurer's chief economist says its study 'clearly shows a positive correlation between resilience and digitalisation. For society, digitalisation is a force for giving more people access to insurance'
Efficiencies generated by digitalisation can lead to cost savings of as much as 20% in areas such as loss adjusting, pricing, underwriting and distribution, reinsurance giant finds
Insurers can shave as much as eight percentage points off their loss ratios from digitalisation programmes, according to Swiss Re.
In a new report, titled The economics of digitalisation in insurance, the reinsurance giant said digitalisation can create significant operational efficiencies for insurers, through the automation of standardised tasks, such as data collection and analysis for underwriting.
Digital technology also allows insurers to gather and process large sets of data using connected devices, data analytics and machine learning, allowing more holistic and accurate risk assessments and better pricing of risks.
Overall, the efficiencies generated by digitalisation can lead to cost savings of between 10% and 20% in areas such as loss adjusting, pricing, underwriting and marketing and distribution, Swiss Re said.
As a result, insurers are targeting a three- to eight-percentage point improvement in loss ratios, it added.
“The study clearly shows a positive correlation between resilience and digitalisation. 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”
Jérôme Haegeli
Swiss Re
In the study, Swiss Re tracked the progress made in 29 sample countries with respect to the digitalisation of their insurance markets. South Korea came out on top in the study, 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, the study found.
China, for example, has moved up 10 places in just 10 years. This is because emerging markets can jump straight into adopting newer digital technologies rather than transitioning from legacy systems, Swiss Re said.
“The study clearly shows a positive correlation between resilience and digitalisation. For society, digitalisation is a force for giving more people access to insurance and thereby closing protection gaps,” Jérôme Haegeli, group chief economist at Swiss Re, said.
“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.
In addition to improved efficiency, digitalisation of the wider economy will provide a source of new growth and new risks for the insurance industry, Swiss Re said.
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.
In addition, digital value creation has led to an increase in firms' intangible assets, including digital data. The increased dependency on digital infrastructure makes such assets more vulnerable, for example to business interruption and cyber attacks, Swiss Re said.
The global value of intangible assets – which increasingly includes digital assets – of listed companies has increased fivefold over the past 20 years to $76trn in 2021, amid the shift from producing physical goods to providing information and services. Close to 80% of that value remains uninsured, Swiss Re said.
Firms will need protection against digital risks, for example business interruption and cyber risks, as well as the emerging liability risks related to artificial intelligence.
Swiss Re estimates global cyber premiums will reach $16bn in 2023, up 60% from 2021, rising to $25bn by 2026.
“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,” Pravina Ladva, group chief digital and technology officer at Swiss Re, said.
“Our industry should see this as an encouragement to continue investing in innovative solutions and adapting to emerging risks,” Lavda added.
