Data is at the core of the insurance business. Insurers process data to analyse the risks that individuals wish to cover in order to tailor products accordingly. In an increasingly connected world, access to data is essential to continue to offer innovative products. With access to and exchange of more types of data, the insurance industry will be able to offer innovative solutions and serve customers more effectively by, for example, improving existing risk models.
In the context of its data strategy, the European Commission has been working to create a legislative framework that encourages data sharing between businesses and that unlocks the potential of the EU data economy.
Ensuring consumers can access innovative products
As consumers embrace new and innovative digital solutions, the insurance industry continues to strive to meet their expectations and use new technologies to better serve its customers. The COVID-19 pandemic has further emphasised the need for strong and innovative digital capacities in the financial sector.
However, it is up to the EU institutions to ensure an appropriate regulatory framework is in place that enables innovation and allows consumers, established companies and new market entrants to benefit from the opportunities that digitalisation can offer. This means removing any regulatory barriers that hold back innovation, facilitating a data-driven financial sector and supporting a greater uptake of new technologies.
Artificial intelligence
Artificial intelligence (AI) carries enormous transformational potential for industry and society. Its benefits have been widely recognised, and it has become an area of strategic importance for the EU and a key driver of economic development.
Insurers are already using AI to improve customer service, increase efficiency and provide greater insight into customers’ needs. Customers are embracing this innovation in insurance, as it responds to their needs and makes their interactions with insurers more convenient.
Another benefit that AI brings is better fraud detection. Insurance fraud is not a victimless or insignificant crime. According to estimates from Insurance Europe’s members, detected and undetected insurance fraud in the EU stood at approximately €13bn in 2017. This raises the premiums of the vast majority of honest customers. The use of AI helps to prevent fraudulent transactions and is making it easier to catch the fraudsters.
However, as with any technological development, it also comes with challenges that need to be assessed and, where relevant, addressed by policymakers and businesses.
Insurance Europe supports actions at EU level to promote and support the development and uptake of AI, as well as actions to facilitate access to and use of data, which is essential for the further development of AI systems.
Any future regulatory framework for AI needs to be consistent with the overall objectives of the EU to promote and encourage innovation, while ensuring respect for European values and principles.
Data analytics
Data has always been vital for insurers. In fact, since the industry began, insurers have used data to analyse the risks faced by their clients.
A greater volume of data and increasingly sophisticated risk modelling allow insurers to carry out more accurate risk assessments when underwriting their policies. This can provide many benefits for consumers.
Insurance Europe produced an Insight Briefing about how insurers’ use of big data can benefit consumers. Some examples of how data analytics can benefit policyholders can also be found below.
In addition, Insurance Europe also published a Q&A document, which aims to respond to the most commonly asked questions about the use of big data in insurance.
Benefits for policyholders
Data analytics in motor insurance
Motor insurance premiums have traditionally been calculated from basic information about a driver, such as their age, driving experience and claims history. New technology makes it much easier not only to refine a driver’s risk profile but also to offer new services.
Examples of digitalisation in motor insurance
Telematics, with its real-time, wireless transmission of data, can give insurers a much better understanding of their customers’ driving. Information from the “black box” technologies that are already being installed in vehicles makes it possible to offer a wider range of products that are tailored to customers; based on the time they spend driving (pay as you drive policies) and/or the way they drive (pay how you drive policies), for example. For some customers — such as careful young drivers who lack experience — this could mean lower premiums.
Understanding a customer’s driving also provides opportunities to improve it. Giving feedback or offering coaching could help prevent accidents. Indeed, just having a black box in the car might improve driver behaviour and safety awareness.
And when there is an accident or claim, access to a vehicle’s data — particularly real-time access — can mean faster, more efficient claims-handling and assistance. Those speedier responses can be beneficial, as they make it possible to settle claims more quickly and more likely that a vehicle is recovered in cases of theft. The vehicle data can also be useful in combatting fraud in motor insurance; the largest non-life insurance line in Europe.
Finally, vehicle data allows insurers to offer innovative services beyond insurance. These can include location-based services, such as directing a driver to the nearest garage, petrol station or hotel, and weather or traffic information.
Benefits to customers and society:
Insurance Europe messages
Insurers firmly believe that consumers should decide with whom they share their data and for what purposes. This issue is made more pressing by the increase in the volume of data due to the greater connectivity (and automation) of vehicles.
This also means ensuring consumer choice through fair competition, by avoiding proprietary models for access to vehicle data so that all stakeholders can offer their services freely and directly to consumers, rather than having to do so through vehicle manufacturers.
Data analytics in property insurance
Property premiums have traditionally been calculated based on information about a property’s structure and its level of exposure to crime or weather-related events. Insurers are constantly expanding their sources of data and the analysis they apply to them to create increasingly sophisticated, predictive risk-modelling tools that improve the accuracy of a property’s risk profile. The more data, the better the predictions and the higher the availability of tailored insurance policies.
Examples of digitalisation in property insurance
Prevention is the cornerstone of any insurance scheme. This is especially true for extreme weather-related disasters which, without any prevention measures in place, could be difficult to insure. The improved risk-modelling means insurers can advise customers more accurately about the risks to their property, so that they can take more preventive measures to limit their exposure and ultimately increasing the insurability of their properties. Such measures include, for instance, how to best implement flood prevention measures based on the characteristics of the property. Flood-related damage can vary depending not only on the location of the building but also, for example, on the underlying land or the building material.
Increased digitalisation also makes it possible for insurers to offer additional products that go beyond cover for damage, such as alerts of extreme weather events like flooding or high winds. These warning systems do not only benefit policyholders, but also the public at large through the use of free apps and online tools available to everyone.
Insurers can also take account of the connected devices in smart homes — known as the “internet of things” — to tailor policies to individual risks. Examples include smart thermostats that turn up the temperature if there is due to be very cold weather, to avoid frozen pipes and subsequent water damage, or smart boilers that remind the owner when they need servicing.
Benefits to customers and society:
Insurance Europe messages
Prevention is the cornerstone of any insurance scheme. It is embedded in the practices of the private insurance sector, which has gained much expertise in this area over the years. This is especially true for weather-related disasters. Without any prevention measures in place, certain properties would be very difficult to insure.
Helped by digitalisation, insurers are better able to advise their customers on the right prevention measures they need to implement to make their properties more insurable. The insurance sector also works closely with national authorities on raising awareness about the importance of implementing such measures. However, public authorities need to encourage a move towards more preventive behaviour and to introduce mandatory measures facilitated by digitalisation, such as land-use planning for citizens and businesses who might otherwise consider the required investment too great.
Data analytics in health insurance
Examples of digitalisation in health insurance
The use of this new technology can be especially relevant to health insurance. Several insurers offer disease management programmes for people with chronic diseases such as diabetes or coronary heart disease. It is possible to monitor the individuals’ health and provide them with lifestyle tips and health advice. Thus consumers become more aware of the preventive measures they need to take to reduce risks associated with chronic diseases and control medical costs. These sources of data can allow insurers to price risks more accurately by using data showing how healthy and active a person is, rather than using the average for someone of that age or gender.
Additional and more detailed data sources can also make it possible to better predict long-term cost trends, as well as to provide cover for health risks that would previously have been uninsurable.
In the long run, individuals’ greater involvement in and better understanding of their own health and wellbeing as a result of using such devices and programmes could lead to healthier lifestyles, increased longevity and more optimal use of medication and deployment of medical staff.
Benefits to customers and society:
Insurance Europe messages
It is important that national health authorities promote health awareness schemes and disease and accident prevention if medical costs are to remain under control and health insurance is to remain affordable. Digitalisation can be of significant help in running such programmes.
Likewise facilitated by digitalisation, is the fight against health insurance fraud. High amounts can be involved in health claims and authorities must support insurers in combatting fraudulent claims.
Data Act
How to make the EU Data Act work from the perspective of insurers
FIDA - Open finance
Data has always been key for the insurance sector. Insurers require access to relevant data to carry out risk assessments, to assess the likelihood of an event occurring and to calculate the premium to be paid by the insured. Cross-sectoral data sharing has the significant potential to further enhance insurers’ capabilities in this regard, as the amount of data increases and becomes more accurate.
A growing focus by policymakers on opening up data demonstrates their recognition of its importance across the entire economy. The European Commission’s plans for an initiative on open finance could have a significant impact in this field and the insurance industry stands ready to actively participate in any discussions on this topic. Open finance, if designed with the right framework, has the potential to positively impact both consumers and insurers. It is, however, important to get the framework right, so that this potential can truly be achieved.
EU Health Data Space
Response to consultation on EC proposal on the establishment of a European Health Data Space
Distribution
In this digital age, consumers expect the convenience of communicating and engaging with their insurers whenever, wherever and however they want. Digitalisation of distribution will make it possible for insurers to offer an omni-channel experience to consumers and tailor their products and services to individual needs.
Here are some of the main digital developments and their potential impact on the distribution of insurance products and services, as well as what they mean for the consumer/insurer relationship.
Enhancing the customer experience
Consumers are embracing innovation in financial services, particularly where it makes their interaction more convenient and improves communication. They want new products and services that respond to their needs and the added convenience of interacting with their insurers when, how and where they want.
No longer an annual transaction, the consumer/insurer relationship is more of a day-to-day experience. New digital offerings may simply provide alternative communication channels, such as social media, or may make choosing or buying insurance more efficient, eg by using an app.
Example: social media
Tools such as instant mobile messaging are a new, more direct communication channel. They meet consumers’ demand for better, more efficient and more personalised services and reduce operational costs. They enhance engagement and build customer loyalty, and are expected to become a tool for distribution, digital marketing, after-sales service and customer support.
These social media tools may enable insurers to gather and analyse customer data and offer improved, more personalised products and services. They make distribution channels more efficient by enabling easy dissemination of information and convenient access by consumers.
Insurance Europe messages
Any new legislation, rules or guidelines concerning the distribution of insurance products should:
Regulators should encourage innovation to allow consumers and industry to reap the benefits of digitalisation, which makes it possible to target and layer the information provided to consumers, decreasing the risk of information overload.
Blockchain
A blockchain is effectively a transaction database. It is an open, decentralised ledger that provides an unchangeable and verifiable public record of transactions or data. There is no need for a third party to authenticate transactions, as everybody has access to all the information.
Blockchain technologies may disrupt insurance markets by reducing costs and increasing transparency and trust. They carry the potential to make a significant difference in:
They would enable consumers to share their health, property and risk data to benefit from even more personalised pricing.
Example: smart contracts
The first use of blockchain is likely to be smart contracts to deliver lower cost insurance to customers.
Smart contracts are computer programs that can automatically execute the terms of a contract when a predefined condition is met. This could mean a policy where claims are paid automatically as soon as a loss occurs and certain conditions are met, without the need for a claims assessor.
For example, a mobile phone could be registered and tracked on a public blockchain ledger. If an insured phone is reported stolen, a claim can automatically be triggered and verified using a smart contract.
Blockchain and smart contracts have the potential to fully automate insurance markets, carrying the potential to dynamically price risk and enabling new markets to develop, such as peer-to-peer insurance.
Insurance Europe messages
Any new legislation, rules or guidelines concerning the distribution of insurance products should:
Regulators should encourage innovation to allow consumers and industry to reap the benefits of digitalisation, which makes it possible to target and layer the information provided to consumers, decreasing the risk of information overload.
Innovation & competition
Digitalisation and new business models are disrupting insurance by opening up new routes to market and ways of engaging with consumers. The digital environment enables companies to bring innovations to market much faster and more easily. This includes new entrants and start-ups that seek to benefit from cost-efficient digital distribution and will affect how insurers compete when distributing products.
Insurance companies need to respond to the new challenges posed by fintech companies. Some are tending to see this as an opportunity, collaborating with fintechs to improve their offerings to consumers.
In one case a UK insurer has set up a “digital garage”: “a dedicated space where technical specialists, creative designers and business leaders explore, collaborate and test new insurance ideas and services which make financial services more tailored and accessible for customers”. It is part of a wholly-owned venture capital business that will invest in digital and new technology businesses in four main areas: the internet of things; data and analytics; innovative customer experiences; and distribution (eg new “shared economy” platforms).
There are also signs of a more general shift towards new and innovative digital offerings by insurers.
Example: Peer-to-peer insurance & the shared economy
Insurance companies are facing growing competition from financial technology companies and new, peer-to-peer rivals.
A peer-to-peer insurance example in Germany acts as an independent broker with a wide range of domestic insurance partners, which rewards small groups of users with cashback at the end of each claims-free year.
The concept revolves around policyholders with the same insurance type that form small groups. A part of their premiums is paid into a cashback pool. If no claims are submitted in a year, the members get some of their money back. If there are claims, the cashback decreases for everyone. Small claims are settled with the money in the pool. Larger claims are covered by normal insurers, with whom the company has partnerships. If there is insufficient money in the pool to cover a claim, a stop-loss insurance covers the rest.
The aim is to make insurance easier and more affordable. It claims to help insurance companies, as improved behaviour reduces the cost of claims, as well as the processing of small claims, while the claims-free bonus increases customer satisfaction and loyalty.
Example: Digital innovation
The Polish vehicle licence contains a QR code that serves as a single digital identifier of the vehicle itself and its owner.
This allows consumers to identify themselves and their vehicles at dedicated ATMs at supermarkets, petrol stations etc.
They can then buy their motor insurance from a large insurer in the Polish market, paying by bank or credit card. The policy can immediately be printed out at the machine.
Insurance Europe messages
Any new legislation, rules or guidelines concerning the distribution of insurance products should:
Regulators should encourage innovation to allow consumers and industry to reap the benefits of digitalisation, which makes it possible to target and layer the information provided to consumers, decreasing the risk of information overload.
Cyber risks
Along with its benefits, increased digitalisation can also bring risks. The risk of financial loss, disruption or reputational damage from IT failure — whether the cause is malicious or inadvertent — is not just a technical problem for IT departments, it is a risk that needs addressing at board level.
Cyber risks are little understood and rapidly evolving. Insurers are involved in raising awareness of the types and dangers of cyber risk. They are also active in risk prevention. And the range of cyber insurance cover they offer has expanded significantly in recent years, led by the US but developing in Europe.
Awareness raising
Many businesses, especially SMEs, are not fully aware of their cyber risk exposures. Yet business of all sizes and in all sectors — whatever the type and amount of data they store — are at risk of IT failures or malicious attacks.
Even companies that are aware of their risks do not always treat cyber-resilience as a priority or consider the need for a risk-transfer tool like insurance.
Cyber risks must be seen not as an IT problem but as an issue that has to be properly understood at board level. They need to be incorporated into a company’s ERM (enterprise risk management) planning.
What insurers are doing
National insurance associations in many countries work closely with their governments to help raise awareness. Insurers also distribute information and publish reports on, for instance, how cyber insurance works, the state of the market at national level or on the needs of insurers to properly underwrite cyber risks. For instance, one European company has published a free guide to help SMEs make their own assessment of their cybersecurity needs.
This increase in information available on cyber insurance can be especially important for certain sectors, eg those categorised as “critical infrastructures” or SMEs. The latter are particularly vulnerable to cyber-attacks due precisely to their general lack of awareness.
Prevention
What insurers are doing
Insurers can help their clients achieve the highest possible level of cyber resilience.
Besides offering valuable risk-transfer tools in the form of cyber insurance policies, their experience in managing risks means they can offer help in developing effective risk management practices, for example through safety audits or the use of third-party certification.
Cyber insurance
What insurers are doing
Cyber insurance can cover a number of first-party or third-party losses.
First-party examples include cover for:
Third-party examples include cover for:
Due to the wide range and complexity of cyber risks, there is no standard insurance product for cyber-related losses. Cyber risks are not only covered by stand-alone policies, they can also be included in traditional policies, so customers need to understand what their policies do and do not cover. This is a good educational opportunity to help consumers understand where there are gaps in their traditional products and how cyber-specific policies can help.
While cyber insurance is a useful tool for assessing risks, it first and foremost a risk transfer mechanism and it will be each company’s individual choice as to what role insurance plays in its risk management portfolio.
To facilitate the development of the EU cyber-insurance market, insurers should have access to anonymised data collected under the EU’s General Data Protection Regulation (GDPR) and Network Information Security Directive.
Insurance Europe has developed a template for breach notifications under the GDPR. The template is easy to use and allows the information to be compared across sectors. The data gathered would be anonymised but sufficiently granular to be of use to insurers.
Digital skills and jobs coalition
Insurance Europe is a member of the European Commission's Digital Skills and Jobs Coalition.
The Digital Skills and Jobs Coalition is a multi-stakeholder partnership set up by the European Commission bringing together EU member states, companies, social partners, NGOs and academics. The coalition aims to help meet the high demand for digital skills in Europe which are essential in today's digital society and economy. It focuses on the development of digital skills for all citizens and the labour force in particular, and on transforming teaching and learning of digital skills in a lifelong learning perspective, including the training of teachers.
Insurance Europe promotes the sector's ongoing work on the use and effects of digitalisation. For example, it promotes the joint declaration and the follow-up declaration signed by the European social partners on the social effects of digitalisation in the workplace. These declarations highlight the need for companies and employers in the insurance sector to invest in the continuous development of digital skills and qualifications of workers.
Moreover, Insurance Europe's InsureWisely campaign promotes and supports the wide range of initiatives by the European insurance industry to increase people's understanding of financial risks and opportunities from an early age. A selection of these initiatives can also be found on Insurance Europe's online Consumer Hub.
Publications
Contacts