The Insurance Digitalization Index by the Swiss Re Institute is a comprehensive index that meticulously tracks and assesses the progress made by 29 sampled countries in embracing digitalization within their insurance markets.
China’s remarkable rise of ten places in just a decade, the study notes, is a testament to the agility of emerging markets in swiftly adopting cutting-edge digital technologies, bypassing the cumbersome transition from legacy systems.
South Korea emerges as the leader on this transformative path, showcasing commendable strides, closely pursued by Sweden, Finland, and the United States.
The new sigma study, titled “The Economics of Digitalization in Insurance,” delves into the intricacies of this transformative journey. Notably, Slovenia, and India are rapidly catching up, defying conventional expectations too. And, contrary to assumptions, the study also finds that the potential benefits of digitalization across countries and throughout the insurance value chain are far from being fully harnessed.
A digital wave across the insurance industry, says Swiss Re’s new report
According to the findings, the creation of digital value has become a cornerstone, amplifying the intangible assets of firms, particularly in the realm of digital data. Simultaneously, the growing dependency on digital infrastructure has laid bare the vulnerability of these assets, exposing them to threats like business interruption and cyberattacks.
Meanwhile, advanced markets boasting robust physical infrastructure and high internet access rates have spearheaded the digitalization revolution, notable progress is being witnessed in emerging markets.
Jerome Haegeli, Group Chief Economist at 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. For insurers, gains from better underwriting, risk mitigation and risk measurement from digitalisation of insurance improve the quality and efficiency of their work.”
The broader digitization of the economy not only introduces new risk scenarios but also creates opportunities for insurers. For instance, the rise of digital technology has facilitated the emergence of sharing-economy business models, bringing about significant shifts in operational risks and liabilities. These shifts necessitate innovative insurance solutions for effective risk transfer.
Services like Uber and Airbnb are gradually supplanting individual ownership, prompting a transition in the business mix from personal to commercial lines based on usage. Personal lines traditionally do not cover commercial vehicle and property usage, making it imperative for insurers to offer innovative digital risk transfer solutions to bridge this gap.
As the economy shifts from manufacturing tangible goods to providing information and services, the global value of intangible assets—now including digital assets—has surged fivefold in the past two decades, reaching US$76 trillion in 2021. Surprisingly, nearly 80% of this value remains uninsured. In light of this, businesses require protection against digital risks such as business interruption, cyber threats, and emerging liability issues associated with AI.
The escalating concern for cybersecurity is evident in the growing demand for cyber insurance, with Swiss Re Institute estimating global cyber premiums to hit US$16 billion in 2023, reflecting a 60% increase from 2021 and projecting to reach US$25 billion by 2026.
The integration of digital technology empowers insurers to gather and analyze extensive datasets using connected devices, data analytics, and machine learning. This capability enables more comprehensive and precise risk assessments, leading to improved risk pricing. Furthermore, digital solutions automate routine tasks like data collection and underwriting analysis, reducing operational costs and ultimately resulting in lower premiums. Insurers’ ongoing digital transformation initiatives aim for a 3–8 percentage point enhancement in loss ratios and substantial savings of 10–20% across various parts of the value chain.
Pravina Ladva, Group Chief Digital & Technology Officer at Swiss Re, said: “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. Our industry should see this as an encouragement to continue investing in innovative solutions and adapting to emerging risks.”
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.
