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The relentless conversion of analog to digital communications and information over the past 15 years, bolstered by the voracious appetites of consumers and an impressive array of AI technologies, has already fueled real industry transformation, spawning the connected insurance ecosystem. This inter-connected network partnership of complementary services will begin to deliver levels of insurance customer experience excellence approaching those provided by established ecosystems such as the Amazon. McKinsey predicts 12 distinctive and massive ecosystems will emerge around fundamental human and organizational needs which will account for $60 trillion in revenues by 2025, or roughly a stunning 30 percent of all global revenues.
These insurance ecosystems, powered by AI technologies across the entire enterprise, are quickly transforming the industry across the insurance value chain. Chatbots are taking policy servicing inquiries and triaging them expertly. First notices of loss are being self-reported by policyholders using smartphone cameras and in real-time from connected vehicles, homes, and businesses, investigated and documented by drones, evaluated and settled in days instead of weeks and subrogated electronically in a frictionless process. Almost every one of these functions is supported by seamlessly connected third-party technology, software and databases. Insurance applications are automatically pre-filled after requiring little more than a few items of personal information. Life insurance policies are being bound simply and digitally and without the need for a medical exam. New hyper-personalized insurance products are being developed and brought to market with lightning speed.
Next Inflection Point: Real Loss Prevention
But the next major insurance industry inflection point will be its most impressive and game-changing. The power of networks has already become apparent but in 2019 it will come of age in insurance. Driven by the torrents of information that will be transmitted by billons of connected things and turned into actionable insights and decisions through the application of artificial intelligence, claims will actually be prevented, turning carriers into risk managers in the truest sense.
Extending this trend, advanced driver assistance systems, autonomous and connected vehicle safety programs will continue to reduce accident and claims frequency and transform personal auto insurance into manufacturer and software liability insurance. Wearables will monitor the health and wellness of life and health insurance policyholders, broadcastings warnings of diabetes, high blood pressure and other conditions, likely avoiding medical claims and even more serious risks. Connected home sensors will notify home owners and first responders of potential risks such as fires, water or gas leaks, thereby minimizing and even completely avoiding costly claims.
Consequences of Connected Insurance Ecosystems
However, the impressive benefits emanating from this new connected insurance ecosystem will come at a price – namely the erosion of personal privacy, the growing threat of cyber theft and the need for ethical oversight of the uses and applications of artificial intelligence. Related consumer protection regulations and standards will emerge and impose new requirements and limitations on the various custodians of this personal information.
Another consequence of the adoption of AI technology will be its impact on the nature of work. Automation will free knowledge workers from repetitive tasked enabling them to focus on higher value functions, and augment human intelligence, enabling faster and better-informed decision making. Significant change management, re-training and continuing education of workers will be critical in order for workers to operate and thrive in the new world of human/machine partnerships.
Strategic Partnerships Become Mandatory
The insurance ecosystem and the relevant data being generated is rapidly expanding and becoming interconnected. No single company, regardless of its size, has all the expertise, resources, relationships and necessary understandings of every co-dependent industry. Cross-industry partnerships and alliances will speed time-to-market, expand market reach for each participant and add more value to the products and solutions consumed by their common customers.
Insurance Evolves from Product to Services
As a result of these changes the insurance business model will also change to reflect this new and different role of insurers as service providers whose “products,” delivered through ecosystem partners, will be priced on the basis of the economic value of their risk avoidance potential. The products known today as “insurance” will evolve into the services known as “protection” as loss avoidance becomes the most valuable benefit and the need for loss reimbursement diminishes. Insurers can also help protect customers from the increasing threat of cyber attacks which are enabled by the exploding number of connected devices in their lives through which their information is exposed.
In this more virtual, less physical world, trust will be gained digitally and socially efficient ecosystems (think Amazon) will generate more customer loyalty than bricks and mortar, big advertising budgets or legacy insurance brands.
 “McKinsey Digital insurance in 2018: Driving real impact with digital and analytics,” December 2018