Technology Enhancements in Insurance

The insurance world is often seen as slow and reluctant to fully embrace technology. However, new competition from the growing number of insurtech companies and the digitisation of reporting to local authorities are forcing insurers to wake up to the wave of technology transformation the sector is experiencing. Still, people behind technology remain key.

Perhaps a professional distortion or an urban legend, but the fact remains, that insurance organisations are seen as conservative when it comes to technology. This reputation might have been true a decade ago but doesn’t fully reflect what’s been happening more recently in the insurance market. We’ve seen more insurtech companies responding to new ways of buying insurance, as well as innovations from the traditional insurance market itself, while premium tax reporting is slowly going online.

Internet steers new ways of taking out insurance

Driven by new consumers’ behaviour, insurtech companies are proposing alternative insurance solutions. New products for temporary risks such as driving a public bike, or periodic property rental are now available. This evolution comes mainly from a wider use of the internet to buy insurance and the so-called Internet of Things (IoT). IoT has been defined by the International Telecommunication Union as “a global infrastructure for the information society, enabling advanced services by interconnecting (physical and virtual) things based on existing and evolving interoperable information and communication technologies”. For insurance this translates with the use of sensors to enable insurers to provide “pay as you go” products such as “pay as you drive” insurance.

These new solutions are also possible thanks to the use of blockchain and Application Programming Interfaces (API). Insurers can now build platforms for their network of brokers and intermediaries that propose turnkey insurance products with a complete automation of pricing, underwriting and payment of claims.

Innovations coming from the classic insurance market

The traditional insurance market is also building some innovative solutions. Among them, the London Market Target Operating Model (LM TOM) in 2018 which involved a large range of stakeholders and took a holistic view. From underwriting to reporting, from post-bind to claims management, it involved a wide range of different parties. Its objective: to ensure the London Market, driven by global insurance programs aimed at big corporate organisations, can respond to the challenges posed by the digitisation of insurance and make electronic placement easier. The conclusions of this project have initiated the launch of Lloyds’ new strategy: “The Future at Lloyds”.

Sometimes, insurers don’t have any other choice other than to innovate. And this is the case with Mergers and Acquisitions (M&A). When they occur, they trigger challenges for both underwriting and reporting teams. Indeed, M&As lead to legacy systems being merged into new consolidated ones aimed at cutting costs and streamlining processes between teams that used to compete against each other. If this is a way to simplify internal underwriting processes in-house, it should also be taken as an opportunity to ensure that strong tax and regulatory compliance processes are implemented to respond to the increasing governmental reporting requirements.

Premium Tax Reporting is slowly changing

For several years local administrations have also taken advantage of technology, especially the internet, to reduce tax gaps. There are several success stories that have helped tax authorities collecting more indirect taxes than previously. However, Insurance Premium Tax represents a small portion of all indirect taxes collected.  It’s also a tax that isn’t due from a significant number of taxpayers, and so the switch from an agglomerate to transaction-level reporting will take time to become the norm. Today, the transition is at its early stages and most of the European Union (EU) territories have switched to online filing. But the road to real-time reporting with e-invoicing and e-receipts is still a long way off. For instance, the latest EU Directive on insurance distribution 2016/97 doesn’t provide specific rules for invoicing obligations and leaves it to the Member States to decide if they want to introduce stronger requirements. In the UK, HMRC failed to address the reporting at a transactional level in its recent IPT call for evidence.

On a case-by-case basis though, we’ve seen progress. The Spanish Consorcio de Compensación de Seguros took the lead introducing a compulsory transactional reporting system to declare the surcharges due by insurers. Examples like this highlight the necessity for insurance companies to start building underwriting systems that can capture a higher level of data granularity. In that respect, APIs act as key tools to ensure the required information can be reported directly to the tax authorities or to an external service provider who will take responsibility for the different tax filings and reporting requirements on behalf of the insurer.

Technology made possible by human intelligence

If insurtech companies and technologies such as blockchain and APIs have shaken the traditional insurance market, they have yet to overthrow the historical actors of the market. Indeed, classic insurance companies still have a handful of trump cards to maintain their supremacy. First, they historically have a strong knowledge of their clients. By adding a zest of technology and investing in developing key partnerships with insurtech companies, they can maintain their leading position and find new and innovative ways in which to sell their products.

Secondly, at a time when focus is increasingly made on the benefits of artificial intelligence, it’s worth remembering this will only be possible with human intelligence. In the world of business to government reporting, it’s hard to predict what will be the next change and which part of the insurance market it will impact. Insurance companies must ensure they have enough human workforce and intelligence in-house or outsourced to anticipate these changes and build the technological solutions. Only then will they be able to tackle the challenges proposed by the ever-evolving insurance regulatory landscape.