Guardian Angel Role Of Insurers Under Threat

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Insurers must shift to a new operating model that promotes prevention instead of compensation, concludes a white paper published by the UK’s SAS Institute.

It points to early examples, such as using vehicle telematics to encourage safer driving or wearable technology to motivate healthier lifestyles, as forerunners of the approach that it says all insurers must adopt “…using technology and advanced analytics to monitor customer activity, identify opportunities to reduce risk, and influence customer behaviour accordingly”.

The report says the global insurance industry is entering a new era where the combination of an ever-growing global population and ever-advancing technological change is causing sudden shifts in the social fabric.

…the reactive approach of ‘wait for it to break, then pay for it’ will no longer be fit for purpose…

“Climate change, cybercrime and new diseases pose new threats to homes, businesses and healthcare systems, while new technologies such as self-driving cars are set to change the traditional risk we face,” says the report.

SAS Insurance risk - white paper
Download the full white paper report.

It adds that insurance firms are waking up to deficiencies in their risk and operating models, which are “…drifting out of alignment with customer needs”.

“Under the current model of insurance, the main role of the insurer is to compensate policyholders for losses once they have occurred — but it would be impossible for any insurer to cover the colossal losses sustained during a global pandemic without setting premiums to a level that would be unaffordable for most clients,” says the report’s author.

“If these (pandemic) events become a semi-regular occurrence in the future, the insurance sector needs to redefine its role: the reactive approach of ‘wait for it to break, then pay for it’ will no longer be fit for purpose. Instead, insurers will need to take a much more proactive approach.”

The report also says the evolving nature and increasing scale of risks are so large, and the potential losses so extensive, that no insurer will be able to cover them — “…preventing the industry from playing its vital role as society’s guardian angel”.