Why have insurers been gradual to undertake digital twins?
Insurers have adopted digital twins more slowly than their counterparts in other industries. Accenture Research, Technology Vision for Insurance, suggests that only 25% of insurance managers are experimenting with the mirrored world and digital twin technologies, although 87% agree that these technologies will be essential to working together in the ecosystem partnerships necessary for long-term success. Why have so few insurers made the leap?
There is inertia in products and prices
The use of twin digital data, including streaming data and real-time risk data, means changing the pricing of products and offerings. This contrasts with 200 years of actuarial mathematics on the basis of data pooling, risk assessment and building insurance with mass insurance. While we’ve seen an increase in usage-based products in the private auto line over the past decade, with some network operators reaching significant sizes, I think that size is the exception and wonder how much of this captured telematics data is really making its way into it the pricing algorithms.
Data platforms and data patterns are often too heterogeneous to provide meaningful insights
In order to be able to draw meaningful conclusions, a certain range of homogeneous data is required. For example, if you have obtained auto telemetry data from a Toyota black box on personal lines, you may be able to use that data effectively. With so many Toyotas on the road, one could draw rough conclusions from this. In addition, the volume of data and behavioral characteristics of this risk are fairly homogeneous in the world of passenger transportation, allowing insurers to develop new products and prices with confidence.
But it might be tougher for home insurers refining their connected home offerings. The types and maturity of the instrumentation, as well as the data sets, vary widely depending on whether you’re looking at data from Google Maps, Amazon devices, ADP security systems, or commercial property building management systems. The same goes for the various industries that insurance carriers serve. The data payloads can vary widely between public institutions, transport companies and production facilities, for example.
Technology Vision for Insurance 2021 – We outline five emerging technology trends that will affect the insurance industry in 2021 and beyond.
Still, digital twins offer valuable opportunities
Despite these hurdles, I think the very real benefits of digital twins are worth it for insurers. More data from a range of sources, coupled with analytics and AI, can provide a wealth of opportunities to cut costs, increase sales, and better serve customers.
In my next post, I’ll cover four areas where you can realize potential for profit by implementing smart digital twins.
In the meantime, if you want to learn more about the technology trends that are likely to affect insurers, check out our report: Technology Vision for Insurance 2021
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