"Our first reaction to new technology is often to recoil in horror"

"Our first reaction to new technology is often to recoil in horror" | Insurance Business America

"Our first reaction to new technology is often to recoil in horror"

Like the Industrial Revolution before it, the Digital Revolution has essentially reshaped the world. The adoption of digital technologies into almost every facet of life has introduced profound changes, some of which have been welcomed, while others are regarded with suspicion.

One risk management leader has noticed a similar pattern in which digitisation is widely seen as a massive threat to the insurance industry. But for Marty Frappolli, senior director of knowledge resources at The Institutes, it would benefit the industry better if it instead viewed the advent of digital technology as an opportunity.

“I’m not sure why our first reaction to new technology is often to recoil in horror,” Frappolli told Corporate Risk and Insurance. “I remember the dire predictions during the dotcom boom that the internet would mean the end for agents and brokers. At the end of the day, new technology just offers a tool that eventually all players have, perhaps bringing efficiency to the transactions we regularly make.”

He explained that digitization, which largely deals with the generation, capture, and storage of massive amounts of new data sources, will certainly bring changes and make some jobs obsolete – such as the elimination of the need for rating clerks and file clerks within insurance organizations.

However, the need to manage risk will always remain, and it may be expanding.

“New jobs emerge, new markets emerge, and smart players will embrace the change and not try to hang on to the past,” Frappolli said. “In my lifetime, I’ve seen IBM morph from a hardware company to a software company to a services company. On the other hand, I saw Polaroid and Kodak fail to adjust to digital photography. While a lot of small and savvy start-ups may seem like a threat to established players, it requires a lot of capital to maintain a robust insurance organization.”

Thus, he believes that the relationship between incumbent and start-up will be more collaborative than adversarial.

“Partnerships are likely as a result, just as we see established carmakers partner with tech-savvy start-ups like Uber and Google. The supply chain and market knowledge of established players is a great starting point for embracing digitization.”

In order for risk managers to successfully move towards digitization, Frappolli believes each organisation must have a master data strategy.

“Insurance has always been just one tool in a risk manager’s tool box,” he said. “Every risk management strategy has been grounded in data about exposures and loss costs. That basic calculation doesn’t change, but the volume of new data changes the approach. For example, machines and monitors connected to the Internet of Things (IoT) allow a more proactive tack for preventing losses. Risk management organizations should feel some urgency to fully leverage this new data.”

Frappolli enumerated three important skillsets needed by risk management firms. First is the actuary, which has domain (risk management) knowledge plus math/statistics skills. Second, the traditional data manager has domain knowledge plus IT/data skills. Meanwhile, the data scientist has the IT/data skills and the math/statistics skills.

“Organizations should use all three of these and search for the ‘unicorn’, or the actuary or data professional who has all three skillsets,” he said.

To demonstrate how technology is making inroads into the risk management field, Frappolli revisited the example of monitors connected to the IoT.

“Consider a simple moisture detector in a home, connected to the IoT,” he said. “I have such a device in my home to alert me if my hot water heater or clothes washer is leaking. But a more advanced version of such a detector will not only alert me in real-time about a problem, but will also shut off the water supply.

“The big leap here is from monitoring and alerts to real-time loss prevention. While the technology is new, the concept isn’t.”

In the future, Frappolli expects an expansion of IoT devices used for loss prevention, as well as predicting that 2019 will be the breakout year for blockchain.

“By now, everyone knows about the public ledger aspect of the blockchain, but few of us see that technology in action in risk management transactions,” he said. “It may remain relatively invisible, but it’s poised to be the technology increasingly underlying familiar insurance functions, like first report of loss or certificates of insurance, as well as enabling new markets that weren’t feasible with conventional technology. The technology may be as revolutionary as the internet was during the dotcom era. Start-ups will come and go, but the biggest impact may again be seen in how established players adapt this new technology.”