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Published : December 13, 2017 | Author : Preethikumar
Category : Miscellaneous | Total Views : 360 | Rating :

  
Preethikumar
Pursuing 5years Ba.,Bl.,(hons) at school of excellence in law
 

Impact of Information Technology In Insurance Industry

Introduction:
We are in a transition from an industrial to an information society. In the present scenario, Information Technology (IT)[1] has become the backbone of every industry, especially for the insurance industries,[2]all over the world. Instead of just adding value to the insurance sector, technology underpins its very growth and evolution. The Information Technology has a huge impact on the insurance industry and the unthinkable have become doable now.

Technology Trends Transforming The Insurance Industry:

The insurance industries are giving priority to the profitable growth.[3] Through the use of innovative technologies this growth can be effectively increased.Yet, while they are critical, implementing new technologies can drain budgets and resources. The insurance industries must judiciously determine which technologies are worth the investment today and which ones deserve a strategic “wait and watch” approach. There are certain technology trends which will make a significant impact on growth in the insurance industry. They are;

Trend 01: Increased Use of Internet of Things By Insurers:
Decline in the cost of sensors, improved communication methods and increased data processing power have enabled the widespread use of the Internet of Things (IoT).[4]
The data transmitted by IoT can be further analysed using data processing techniques for useful insights.in the insurance industry, the property and casualty (P&C) line of business was the first to adopt IoT in the form of vehicle telematics and other forms of it such as connected home technologies[5] and wearables[6] have a slower rate of adoption, but they are expected to have widespread adoption in the future.

Implications:
· Using IoT, insurers can closely analyse customers’ data and identify their needs and risks.
· Customers’ health risks can be determined more accurately using wearables.
· Policyholder service will transform from being a customer-initiated activity to insurer-initiated activity.
· IoT can help in reducing the turn-around time for initiation of claims by tracing the exact location and circumstances responsible for the claim.
· IoT sensors can be used as warning systems, which can reduce the frequency and severity of claims.

Trend 02: Auto-Insurers Are Shifting Toward Usage-Based Insurance.[7]
Auto-insurers are shifting toward Usage-based Insurance, which will help them to enhance their claim handling capabilities and enable them to perform better customer segmentation. Around 36% of auto insurance carriers are expected to use telematics-based UBI by 2020.[8]
Insurers have tested the concept and started introducing policies in some markets and the adoption is expected to increase over few years.
Insurance companies are implementing Usage-based Insurance in the ways of PAYD,[9] PHYD,[10] and MHYD[11].
Customers are also interested in UBI, as it offers a lot of benefits to them.[12]

Implications:
· Insurers can have a better segmentation of risk profiles and enhanced claim handling capabilities.
· New direct insurance start-ups serving customers entirely through mobile or online touch points will emerge
· Insurance companies may partner with carmakers to install customizes telematics devices at the time of production.

Trend 03: Using Big Data To Improve Claim Processing Capabilities:
OVERVIEW:
The Big Data[13] analytics enables the insurance companies to identify and report events in a fast and effective way and the claim assessment activity can now be automatically assigned based on the performance of the adjuster and complexity of the claim.

Insurance companies can efficiently execute the subrogation and settlement process, which was a challenge due to the huge amount of data.

Implications:
· Insurance firms have to improve their Big Data storage and processing capabilities[14]
· Firms should pick data from the right sources, as some data may be unimportant and could be misleading.
· Firms will need to be proactive in trying out new models and tools, as old tools may not be the most efficient in handling new formats of data.

Trend 04: Entry of Non-Traditional Firms In Insurance:
Non-traditional firms[15] are entering the insurance value chain through partnership and alliances. Around 90% of insurance executives have an opinion that insurance companies will have alliances with non-traditional organizations to improve distribution.[16]

The new entrants are primarily focusing on the distribution portion of P&C and health insurance; for example, google and Walmart have partnered with comparison sites to offer auto insurance[17]in U.S. The new entrants are expected to face challenges on the regulation front, as the insurance industry is more highly regulated than the current business in which they are operating.

Implications:
· Because of the entry of new players, competition will increase in the market.
· The smaller insurance firms will be impacted the most, as they will not be able to scale up their technology infrastructure and competency to cope up with the entry of technology giants.
· Customers will benefit from the increased competition in the industry, which will force companies to provide a better customer experience.

Trends 05: Increased Use of Aerial And Digital Imagery:
Aerial and digital imagery[18] and the technical advancements[19] in it can be used by insurance companies for seamless data management, avoiding risks, providing a quick response to catastrophe events, and detecting fraud.[20] It reduces the cost of insurance companies processing claims.[21] Though it has a lot of benefits, it also has a few challenges for its implementation.[22]

Implications:
· The benefits associated with aerial and digital imagery have a huge potential to become a primary tool for insurers to assess properties.
· Insurers can look for alliances with professional firms to provide these services.
· Data storage and processing capabilities will need to be enhanced to accommodate and process images.

Trend 06: Increasing Demand For Cyber Insurance:
Though companies have an information security division and several best practices to prevent cyber-crime, it is impossible to ensure complete protection from cyber-crimes.[23] Cyber risk has been termed as a potential global threat by the World Economic Forum.[24] The increase in cyber threats are the prime reason for the current need of cyber insurance.[25] The cyber insurance covers various damages.[26]

Implications:
· The nature of business and local regulation while designing the product have to be understood by the insurance providers.
· Insurers can integrate cyber –insurance products to the existing core systems
· In the policy administration and underwriting phase, insurers have to study the potential impact of cyber-attack to determine the pricing.

Trend 07: Social Media And Collaboration:
Social media is about helping people connect. Consumer and agent expectations for connection have been established through social media tools[27] that provide an opportunity for people to collaborate and share information. The other uses of social media tools improve collaboration[28] and improve decisions and processes both internally with carriers[29] and externally with the distribution channel.

Impacts of Information Technology:

· Performance of the employees[31]
· Service quality[32]
· Convenient transaction[33]
· Wishes[34]
· Customer satisfaction[35]

Conclusion:
It is found that the insurance companies are aware of most of the existing technologies and have considered the potential advantages and costs to their companies of utilizing such technologies. Also, large insurers and high users tend to have a greater enthusiasm for new technologies.

New trends may be spawned by new technologies. In summary, while most executives of top insurers are aware of the need to utilize new technologies to compete in future markets, the natural resistance to high tech changes because of their dehumanizing characteristics, must be overcome because the speed of transition is indeed dependent on people-acceptance as well as technical capability. In the nutshell, the government, the insurance companies and the customers have benefitted from the use of information technology in the insurance sector.

Bibliography:
Journals:
1. Richard L. Manning, Matilde K. Stephenson and Jerry D Todd ; Information Technology in the Insurance Industry: A Forecast of Utilization and Impact; Source: The Journal of Risk and Insurance, Vol. 52, No. 4 (Dec., 1985), pp. 711-722 Published by: American Risk and Insurance Association Stable URL: http://www.jstor.org

End-Notes
[1]Information Technology (IT) is described as any technology that helps to produce, manipulate process, store, communicate, and/or disseminate information (William and Sawyar, 2005); Pitt et al. (1999) expressed that information technology may be considered as a platform that rides on the Internet, a hypermedia information storage system which connects computer-based resources around the world.
[2] The insurance industry of India consists of 53 insurance companies of which 24 are in life insurance business and 29 are non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. Apart from that, among the non-life insurers there are six public sector insurers and there is sole national re-insurer, namely, General Insurance Corporation of India (GIC Re). The stakeholders in Indian Insurance market include agents (individual and corporate), brokers, surveyors and third party administrators servicing health insurance claims.
Out of 29 non-life insurance companies, five private sector insurers are registered to underwrite policies exclusively in health, personal accident and travel insurance segments. They are Star Health and Allied Insurance Company Ltd, Apollo Munich Health Insurance Company Ltd, Max Bupa Health Insurance Company Ltd, Religare Health Insurance Company Ltd and Cigna TTK Health Insurance Company Ltd. There are two more specialised insurers belonging to public sector, namely, Export Credit Guarantee Corporation of India for Credit Insurance and Agriculture Insurance Company Ltd for crop insurance.
[3] “Private life insurers recorded a double digit profitable growth of 15.6% in new business premium collections in the Financial Year 2014-15. However, the state-owned insurer LIC, witnessing a double-digit fall of 24.4%, pulled down the aggregate industry performance to an overall decline of 9.8% in the same period. Signs of turn-around in the life insurance sector are evident with 19 out of 23 private life insurers declaring profits for FY2014-15.”
[4] The Internet of Things (IoT) refers to a network of physical objects that contain embedded technology to gather information about specific objects and also has the ability to transmit information.
[5] Connected home technologies enable people to communicate with electronic devices in their home:- the popular connected home technology devices are smart thermostats, connected security systems, etc.,
[6] Wearables refer to electronic devices that can be worn on the body and they can collect and transmit a variety of data about the activity of the people who are wearing them and the long-term growth prospects of wearables are expected to be strong.
[7] Usage-Based insurance (UBI) implements the concept of writing the premium for auto-insurance based on usage and/or driving behaviour.
[8] “Usage-Based insurance and Telematics”, National Association of Insurance Commissioners, October 8, 2015.
[9] Pay-as-you-drive (PAYD) is low-mileage insurance where the insurance premium is calculated based on the number of miles or kilometres a vehicle has covered
[10] Pay-how-you-drive (PHYD) is a method of fixing the premium of the customer by assessing their driving style.
[11] Manage-how-you-drive (MHYD) provides guidelines to drivers about best driving practices, leveraging on the data obtained on their driving behaviour from telematics devices.
[12] Benefits includes, opt out without penalty, receive discount, control over what they pay, additional safety measures, view driving sources and child driving information’s etc.,
[13] Big Data is defined as high-volume, high-velocity, and high-variety information assets that provide new insights and enable better decision making, leveraging innovative data processing techniques.
[14] Big Data capability not only means possessing the technology, but also having the right set of human resources, who can enable firms to use the data and tools more effectively. i.e., role of data scientist is crucial in deriving insights from data
[15] Firms such as google, Walmart, and amazon have access to a vast customer database and are successful in their business models and have a huge capital base.
[16] “Can Amazon Dominate in Insurance, Too?” sathyanarayanansethuraman, Insurance Thought leadership, February 13, 2014
[17] Google launched an online insurance comparison site, which let the users compare rates from different insurance providers, in the U.K. in 2012 and in the U.S. in 2015.
[18] Aerial and Digital imagery utilises digital images and software to view properties and land, and estimate their size, location, damages incurred, and proximity to identified risks.
[19] Recent technological advancements on Aerial and digital imagery enables the insurers to capture high-resolution 2D and 3D images of land and property, which can be processed by advanced software.
[20] Federal crop insurance lost around $117 million in a year because of waste, fraud, and abuse. This can be prevented if the land is surveyed using Aerial and Digital imagery.
[21] A leading insurer conducted an experiment to test the effectiveness of unmanned aerial vehicles. While the adjusters were more likely to over-measure 79% of the time, unmanned aerial vehicles assessed the properties with greater accuracy. The carrier would have overpaid $338 per claim if they had not used UAVs.
[22] Risks such as violation of property access rights, disturbance in public safety, operator safety and regulatory approvals for drones.
[23] Impossibility in giving complete protection is due to non-availability of sound technical solutions, vulnerable security products, problems in implementing security solutions, and human errors.
[24] The global financial impact of cyber-crime is estimated to be around $575 billion.
[25] Though cyber-insurance has been available for ten years, it was not widely adopted due to lack of data, lack of awareness among users and legal hurdles. Most of it cover the U.S. and the adoption in other parts of the globe is relatively low.
[26] The damages covered by cyber-insurance are intellectual property theft, business interruption, data and software loss, cyber extortion, cybercrime/cyber fraud, breach of privacy event, network failure liability, impact on reputation, and physical asset damage.
[27]Social media tools—such as Facebook, LinkedIn and Twitter—are frequently used in marketing to drive brand awareness and connect with customers.
[28] In the present scenario, the collaboration in the insurance industry takes place in the form of emails and face-to-face meetings.
[29] The carriers begin by determining the role of collaboration within the context of the carriers’ overall business strategy, including its impact on governance and compliance, cultural implications and ability to demonstrate measurable success. This includes creating processes and policies and driving employee adoption and participation.
[30] To determine the strength of the relationship of performance of the employees, service quality, convenient transaction, wishes, customer satisfaction and information technology, the simple regression analysis was performed in order to predict the dependent variable from the independent variable (predictor) where performance of the employees and etc., was considered as the dependent variable and information technology was considered as the independent variable and hypothesis was obtained.
[31] The hypothesis “performance of the employees in life insurance is dependent on information technology” is adopted.
[32]The hypothesis “Perceived service quality in life insurance is dependent of the information technology” is accepted
[33] The hypothesis “Convenience in transaction by the customer is dependent of the information technology” is accepted.
[34] The hypothesis “Fulfilment of customers’ wishes is dependent of the information technology” is accepted.
[35] The hypothesis “Customer satisfaction in life insurance is dependent of the information technology” is accepted.

Writing award This article has been Awarded Certificate of Excellence for Original Legal Research work by our Penal of Judges



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