Expert Risk Articles

Digital Innovation: How technology is transforming the risk business

Insurance, like the rest of the world, is rapidly changing: customers expect results now, technology is progressing faster than the industry it serves, and market boundaries are shifting like tectonic plates resulting in a disruptive shock for the industry. Recent trends in the industry like InsureTech, data analytics and blockchain technology have emerged that promise to transform the way commercial customers interact with insurers.

InsureTech: Start-up technology that may transform commercial insurance

$2.6bn raised by insurance technology start-ups in 2015; more than the previous five years combinedImagine a commercial insurance world where customers interact with brokers and insurers through smart devices – simply, efficiently, quickly – as their primary channel of communication. Automated “robo-advisers” provide quotes, process submissions and issue renewals. Smartphones and drones improve claim processing. Machine-to-machine communication drives the daily commerce of policy processing. Automated underwriting frees underwriters from the paper grind to become data scientists.

Is it too far-fetched? It’s not that hard to imagine, because smart commerce is already prevalent in so many aspects of our daily lives – from personal banking to health insurance to online shopping.

Throughout the history of insurance, the various parts of the value chain - underwriting, capital management, claims management – have always improved in performance by adapting to new technologies. InsureTech, and its parent, FinTech, are transforming the insurance and financial services industries due in part to a reaction to the financial crisis of 2008-2009 and plunging interest rates, but also because smart commerce is so prevalent elsewhere that customers have come to expect it. The bulk of FinTech companies are in Asia, particularly China; the US, so far, dominates the InsureTech space.

90+ deals in 2016 to date, raising $1.5bnAnd start-up companies are responding quickly and confidently to those expectations. But the bulk of the activity has been in the non-commercial space. The move into the commercial space will likely be in the small-to-medium enterprise (SME) sector.

“Investors are very excited in the innovation potentiality of the InsureTech space,” says Hartmut Mai, Member of the AGCS Board of Management, CUO Corporate Lines. “The financial industry has a reputation of being not too innovative, so this is a big growth area. Allianz is taking new technology seriously and encouraging investment in new InsureTech companies that improve the customer journey through support initiatives like Allianz X (see box below).”

“Innovation isn’t happening just in a bubble or just in one department of one insurance company. Innovation is happening now all over the place in our industry.”

Innovation, like any business improvement, must create a return on investment and innovative insurance solutions must add value to the customer experience and revenue streams to the company.

Mai describes innovation as an entrepreneurial activity. An idea sparks the awareness that a new or improved revenue possibility exists. The idea gathers steam and, with investment of resources and a clear strategy for exploration and hopefully implementation, is brought to fruition as a value-add business improvement. It usually isn’t done in isolation, either. Innovation is a group endeavor.

“Investment in innovation is the life blood for building the future of the organization,” Mai says. As the following pages reveal, data improvement, predictive analytics, just-in-time, agile risk management assessment and pricing – these are just a few of the ways in which the industry is changing in order to survive and thrive.

What is Allianz X?

Allianz X is a business designed to help entrepreneurs grow new InsureTech companies. Program participants are employed as “entrepreneurs in residence” with a salary and are led through the company-building process until they become healthy InsureTech start-ups. FairFleet, an on-demand aerial inspections business which links qualified pilots with customers in need of drone services is an example of a business supported by Allianz X.


Turning innovation into reality


[i] Global Insurance tech start-up investment surges, Financial Times
[ii] Financial Times, Financial Technology Partners


What’s the big deal about big data?

How can big data and digital technology help insurers engage more personally with customers?

Data analysis has always been part of an insurer’s core business. Until now, the spotlight has been on analyzing in-house data, however in future, as the data generated by our digital lives grows exponentially, external data will far outweigh data in-house.

The continuous enhancement of analytical methods allows for new forms of risk assessment. Initially, both business analytics (evaluating data), and its subcategories, data mining (knowledge from giant data portfolios) and predictive analytics (predicting trends and behavior on the basis of giant data portfolios), will
supplement the existing risk analysis and may replace it if they prove reliable in identifying relationships, trends and patterns that are buried in large amounts of data.

The digital universe

According to IBM, the three billion users surfing the web today with multiple gadgets are currently producing 2.5 quintillion bytes of data – every single day. Around 90% of the data available today has been generated in the last two years alone. In 2020, the digital universe is expected to contain 44 trillion gigabytes, equivalent to five times the amount it contains today.

Unlike the volumes of data generated in the digital world, insurers’ in-house data is subject to regulations; nor does it provide a glimpse into the future. Insurers who know how to use the vast amounts of external information in combination with their own insights will be in a position to estimate risks and gauge customer needs with greater accuracy.

Business interruption risk

When it comes to business interruption and supply chain risks, data analytics has enormous potential. AGCS is currently working on an application that scans public data to identify and visualize companies that have supply links with other companies. This helps to make complex supply chains transparent and identifies bottlenecks where downtime could be critical. This could be a sub-supplier based in a region that is susceptible to typhoons, for example.

If this supplier were to suffer from business interruption, consequences would be far-reaching, possibly affecting the industry, as well as the insurer. The data analytics application helps to identify the supply chain’s breaking points.

However, big data analysis requires an investment in both people (see page 24) and appropriate systems. High performance IT platforms linking a variety of internal and external data models are also a must.

The possibilities of data analytics go beyond the scope of conventional insurance underwriting. Data analytics could also be used in claims to enhance fraud prevention, the setting of reserves or recovery management. There is also a plethora of opportunities for applying data analytics in pricing, product development or when optimizing customer relationships and sales channels.

Innovative data applications and data-based business models are not just crucial for the survival of industrial insurers, they are indispensable.

Good data drives improved risk assessment

A competitive edge in the insurance industry is based on having the most up-to-date information and channeling it efficiently. Innovative tools will supply underwriters, loss engineers and claims adjusters with the ability to better assess a client’s risk, providing numerous hazard resources, geographic information system (GIS) “geoinfometrics”, ad-hoc solutions to assess terrorism exposure or contingent business interruption (CBI) risk, and other real-time risk solutions.

“The quality of data received from customers has also significantly improved as they become more knowledgeable and risk-aware of natural catastrophes and how insurers can assist in their being better prepared. We are all improving together – and changing the industry in the process,” says Cosmin Tanasescu, Head of Catastrophe Risk Services, AGCS. “But it all begins with good data.”

Blockchain: What is it and will it transform insurance?

Blockchain is a new way to securely and safely store and organize data as a smart contract. Can it transform insurance data management?

Click image to enlarge

The B3i initiative - Allianz has partnered with four other insurers to explore the potential of blockchain for the insurance industry.

“Distributed ledger technologies” or blockchain holds promise in delivering safe, secure and instantaneous insurance transactions from customers to insurers and reinsurers.

“Blockchain is a revolutionary protocol enabling digital contracts and transactions to take part across multiple parties in a secure, transparent and auditable way,” says Fei Zhang, Lead of Blockchain Projects at Allianz Disruptive Technologies, Group Enterprise Architecture.

For insurance applications, transactions could be closed online, resulting in a “smart contract” instantaneously accessible to all parties. The contract would be immutable and identifiable by an embedded program code that executes at a pre-set time. This kind of technology provides increased transparency and convenience.

The technology can also be used in catastrophe risk management. Allianz Risk Transfer (ART) and Nephila Capital Ltd. recently copiloted a project using blockchain smart contract technology to transact catastrophe swaps.

The test run demonstrated that transactional processing and settlement between insurers and insureds can be faster and easier to process, but that blockchain carries potential uses for trading catastrophe bonds and other risk transfer transactions, as well as other insurance transactions.

“Regardless of its use,” explains Richard Boyd, Chief Underwriting Officer, ART, “by replacing the human interventions which are currently embedded throughout the entire risk transfer process, frictional delays and the risks of human error are completely removed, with a radical effect on the speed and efficiency of the process.”

At the end of the day, however, blockchain will require a degree of change management to persuade the insurance industry of its value and encourage a “let’s do it” approach, rather than a “let’s wait and see” one.

Beyond tactical organizational changes, according to a Deloitte study[1], potentially blockchain will require engaging with like-minded organizations (e.g. the B3i initiative) to develop industry strategies and prepare for change. Understanding the risks and level of disruption beforehand is also key to the design of effective systems.

“Allianz’s strategy in blockchain is to explore different categories of potential use cases and create strategic options for future moves,” says Zhang, “so that we are ready to act when we need to. We remain very open to the technology and its potential to transform our industry.”


[1] Blockchain: Enigma. Paradox. Opportunity, Deloitte



How to digitally transform?

To really transform the industry, core insurance service applications will have to be reconfigured – customer service as well as claim operations. Insurance companies hold vast data for process management, analytics, mobile technologies, and business applications, and that data can do some powerful things. Insurance companies are beginning to focus on digital methods of garnering, processing and delivering information, which requires a comprehensive evaluation of existing tools, processes of managing information and channels of communication to heighten the customer experience.