This point of view article originally published on Digital Insurance, authored by Vijay Mahendrakar, Head Of Insurance Business Solution, Europe, Mphasis

The emergence of next-generation technology solutions such as artificial intelligence, machine learning, predictive analytics, cloud and edge computing is causing a seismic shift in the insurance market – disrupting the outdated, typically protection policy-focused model.

By facilitating access to rich, unstructured data in real-time, technology is paving the way for insurers to employ greater personalization and become customer-centric. It can drive tremendous growth opportunities as well as cost and operational efficiencies by promoting wellbeing and prevention services.

It’s a hot topic, given that fewer than half of customers in the U.S. lack trust in the insurance sector. The sector makes up nearly half of the global insurance market, managing almost $2.5 trillion and playing a significant role in the country’s economy. A market of this size and influence has little choice but to adapt to survive and flourish.

What’s the challenge for the insurance sector? Customer expectations and requirements are shifting, and insurers need to accelerate change to meet them. The solution is to harness emerging technologies to gain valuable insights and enable greater personalization, which is still a nascent concept for much of the industry despite the progress already being made.

Turning the status quo on its head

Today, most customer data is still being collected via form-based documents, a cumbersome manual process that, more often than not, fails to deliver a solution that is the best fit for individuals.

Larger insurers, as well as tech-savvy startups, have realized that they can lean on technology to gather the necessary information and present it to the customer in a ready-made package. It takes the pressure off the customer to supply the precise data that would guarantee the most suitable deal.

However, access to information that’s not readily available means engaging in more meaningful ways with customers, so that they see the advantages of opting in to share personal data. A great case in point is Vitality, which rewards customers with savings in return for tracking their physical activity and biometric data through wearable devices. As a bonus, it encourages people to improve their fitness levels, wellbeing, and quality of life.

Consider the use of IoT in car telematics. By installing a small ‘black box’ or dashcam device, insurers can now measure exactly how, where, and when someone uses their car. This level of intelligence can benefit young or new drivers the most, for whom the cost of insurance can be prohibitively expensive (often more than the car itself). Based on the data, insurers can charge a lower premium and adjust it monthly, rather than offering a rigid annual price. In turn, this inspires drivers to focus on road safety and drive carefully.

It marks a leap forward from the closed, impersonal and stand-alone insurance system to a fresh business model that is a part of an open market ecosystem and revolves around the customer.

Prevention is better than cure

Currently, businesses commonly follow the mantra of ‘systems and applications are the core’. I believe that it should be ‘data is the core’. Tapping into data in game-changing ways enables insurers to be agile and informed enough to offer thoughtfully tailored solutions.

Helping people should be the raison d’etre of insurers, something easily lost in the race to gain profitability and market share in a crowded space. They have a responsibility to deliver social value and act as an educator on best practices.

Technology has empowered insurers to prevent adverse events in the first place and/or minimize the impact of these events. Take home insurance – approximately $13 million is paid out for water leaks each year. Predictive analytics and AI can map historical weather and geographical data to pinpoint potential hazards. Given that rates are based on the likelihood of a claim, smart technology that can spot leaks and provide quick remedial action naturally results in lower costs.

With great innovation comes great responsibility

With any emerging technology, the other side of the coin is the potential for misuse and security issues. There’s much controversy surrounding price optimization and dual pricing, whereby insurers appear to let down their loyal customers.

Price optimization, like underwriting, is increasingly dependent on the use of machine learning. If insurers aren’t careful, this kind of automated profiling can lead to discriminatory decisions. Another big concern is underinsurance, which puts certain vulnerable segments of society at a disadvantage, such as those living in flood-prone areas. By leveraging technology, insurers can stop relying on ‘guestimates’ and assess levels of risk properly to offer better deals and democratize access to insurance.

Insurers are still learning how to introduce disruptive solutions while mitigating the accompanying risks. Seeing the potential of new technologies, the government is avoiding overregulation to not inhibit the flow of innovation.

In the absence of firm regulation or policy on the ethics of data, the onus is on insurers to self-regulate and lead by example. They need to understand that their bottom-line relies on them prioritizing the ethical use of data, fraud prevention, fairness, and transparency, to strengthen customer retention and build trust. It’s a win-win situation.

So what’s the next frontier?

The urgency for clunky insurance models to change is being pushed by ever-evolving consumer behaviors and is aligned with wider trends. The way we live, work, and travel is shifting.

In an age of digitalization and globalization where everything is at our fingertips 24/7, service providers must adapt to offer the same level of flexibility. Consumers are used to renting everything now (think Uber and the gig economy), and insurance needs to integrate into the renting economy to stop being a ‘grudge’ purchase.

The real proof of innovation will come when insurance becomes invisible. It means that it is a frictionless and effortless buy, instantly modifiable to suit the customer’s lifestyle. For example, if you’re a delivery driver using your vehicle on a professional and personal basis, you need to be able to change your cover without buying two separate year-long policies.

Customers will only benefit if insurers have the right forward-thinking strategy in place on incorporating next-generation tech. The time is now for the industry to embrace this much-needed disruption and ensure that the end goal is wellbeing.