Digital transformation of insurance processes in a changing risk landscape
Although the insurance industry is known for its conservative approach and slow innovation in business processes, a change is looming on the horizon - a change that was long overdue but is all the more necessary today. Digitalisation is making its way into the insurance industry, and there too, no line of business will be spared.
The digital transformation of insurance processes in the agricultural sector has also begun – for several reasons:
- The Agriculture Insurance Market volume is expected to increase to a volume of US dollar 40 billion by 2020 and to US dollar 50 billion by 2025 (1)
- The development of services such as early warning systems and crop monitoring capabilities for insurance processes will meet clients demand and gain their trust
- An increasing amount of data from alternative data sources enables insurance organizations to improve the accuracy of their risk assessment and cost effectiveness of their services
- The use of big data and IoT technologies leads to more individualized insurance products for farmers
The race to exploit untapped markets through digital business models and resulting ready to market service packages for (agricultural) clients has just begun. Agricultural insurance companies will take advantage of innovations in earth observation and weather intelligence in order to improve their insurance product offering and diversify their portfolio in a sustainable way. (2)
This will become ever more important as climate change poses a yet unquantified risk to the entire insurance industry, but in particular to the agricultural line of business. Tomorrow’s natural disasters won’t look like those from the past in terms of frequency, severity or location (3). Additionally, governments are recognising the role and benefits of a market-based insurance industry in carrying and transferring risk. There is increasing evidence that countries with widespread market-based insurance coverage recover faster from the financial impacts of extreme events. Yet there is a large and, especially in agriculture, a widening protection gap, indicating that the benefits of risk transfer measures are not being harnessed to their full potential.
Therefore, the insurance industry has a critical role in building socio-economic resilience and for adapting to climate change impacts and preserving economic development. While contributing significantly to building financial resilience to extreme events by providing risk information and innovative risk transfer products, the industry will help to develop more personalized services and to improve pay-out mechanisms towards fast and uncomplicated payments by digitizing important insurance processes. (4)
Agriculture as one of the major contributors to climate change but also as one of sectors that will suffer the most from changing frequencies and severities of extreme events and natural hazards will play a special role in various future risk scenarios. Not only in Europe but globally, the insurability of agricultural risk is at stake and can only be addressed by innovative business models, data intensive analysis and models as well as multidisciplinary thinking and international collaborations.
Therefore, INFINITECH is the ideal testbed to leverage the technological component of Big Data and IoT applications for the Agricultural Insurance Industry by testing the advantage of innovations in earth observation, weather intelligence & ICT technology in real pilot cases. Besides, the project offers the opportunity to achieve faster and cost-effective compliance to regulations as well as ensuring regulatory compliance by design.(1) Qatar Re, Market Report (2018)
(2) Eiling et al., „The Impact of Digitalization on the Insurance Value Chain and the Insurability of Risks” (2020)
(3) https://www.forbes.com/sites/andystone/2020/01/30/climate-change-will-make-more-of-the-world-uninsurable/ (last access, 29.04.2020)
(4) The Geneva Association “Climate Change and the Insurance Industry: Taking Action as Risk Managers and Investors - Perspectives from C-level executives in the insurance industry” (2018)