Insurance: The Next Generation (Part 2)

In the first post of this blog series, we examined how various technologies will enable a sea change in the way insurance is sold and consumed. In short, the insurance industry has an opportunity to meet the needs and expectations of modern consumers and corporations as more information is made available from more accurate sources. Mechanisms such as the Internet of things (IoT) and the burgeoning number of smart devices coupled with cognitive computing will provide for a more evidence-based, real-time approach to managing risks for individuals and commercial enterprises. Part one introduced the concept of a "dynamic indemnity architecture" (DIA), which would manage the technical, geographic, and legal aspects of communications needed between the components of a personal risk management (PRM) solution. 

To start simply, imagine the following conversation:

"Hi , it’s me, Bisker auto ; I appear to be at my garaging address, and my engine is not running and is getting cold. Please return my coverage to as established in standing master policy until such a time as you are informed otherwise. As per usual, should there be a communication problem, I will be covered for that exceptional event. If sensors indicate the necessity, please activate the proper coverages; I hereby authorize cessation of dynamic policy ; ."

These innovations and ideas integrate microfinance and microinsurance concepts, real-time contract generation, and the integration of technological capabilities such as cognitive computing and the semantic Web to build a more dynamic and ultimately better risk mitigation mechanism for modern societies. They make use of the basic statistical elements of risk sharing that form the basis for insurance. Even though contracts for coverage would be dynamic, the risks could be aggregated behind the scenes (I hesitate to say it this way, but that could also be viewed as happening in a "risk aggregation cloud") to help balance the overall risk that any one carrier or policy would have to handle. The DIA could be set up to handle a broad range of coverages and incorporate the concept of micropooling similar risks. Upon review, this can be seen as the microsegmentation of coverages applied as needed.

The beauty of this approach is that it can start small and grow or shrink as needed. A window on the background mechanisms that could be used are readily seen in the practice of algorithmic trading of investments. However, instead of the risk of "flash crashes" that disrupt real and synthetic markets, the automated trading and placement of exposures and risks might at worst cause tragic, smothering IAC (irrational abundance of caution).

This blog has been reprinted with permission from Aite Group.

Jamie Bisker is a senior analyst with Aite Group.

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