Trade bodies like the Association of British Insurers and Insurance Europe are lobbying machines. They trade in influence, largely in the corridors of power inside Parliaments and Commissions. And the impact of this can be seen in many pieces of legislation, as insurers are given special treatment in order to protect what is often referred to as the ‘right to underwrite’.
Yet in recent years, it looks like that lobbying has been having less of an impact than in the past. This is happening more in life and health insurance, but general insurance has not been immune.
Some Examples
The EU AI Act is to treat artificial intelligence used in life and health insurance systems as high risk. And while it is putting constraints on any expansion of social scoring type analysis on firms in all sectors, insurers are likely to be more impacted than most. Then there’s the European Digital Health Space, which is to ban insurers from accessing secondary health data.
I’m sure the sector was lobbying hard to avoid such restrictions, but to no avail. In fact, the ban on social scoring got tighter and tighter as negotiations went on. At first it was to apply only to public organisations, but then private organisations like insurers were included too. At first it was only to apply to the scoring on people on the grounds of trustworthiness (aka their fraud potential), but then that reference was dropped and all activities were encompassed. And towards the end of negotiations, the word ‘inferred’ was added, thereby closing the door on the inferential analytics that insurers use in many situations.
These changes didn’t come about because the negotiators were just inclined that way. They happened because others presented cases that were much more resonant than those coming from the insurance sector.
Power Shift
This is in line with my recent comments about there being a shift happening in informational power and influence. Other stakeholders to the insurance sector (the most obvious being consumer groups) are now able to assemble their evidence and put their case for change more effectively than in the past. And they are clearly being listened to.
I believe they’re being listened to because they have found a more impactful narrative, one that catches the ear of policy makers. In very broad terms, this narrative looks at the impact that digital decision systems are having on different types of consumers. They are in effect bringing the voice of the consumer more to the fore in policy discussions.
So what does this mean for insurers? Many of these restrictions are in relation to digital systems. Will innovation in the sector be forced to throttle down to a lower gear?
It’s possible, but that will depend on both what insurers do and on how consumer groups respond. Here are three steps that can make a difference.
Steps to Take
Firstly, insurers need to develop a more open, sharing and balanced relationship with consumer groups. All too often, when it comes to big transformational decisions happening in the sector, consumer groups are kept at a distance, seen as irrelevant and mistrusted. That has to end. The above lobbying failures illustrates why.
Secondly, insurers need to really improve their evidencing of an oft heard remark, to the effect that innovation in insurance is increasing financial inclusion. All too often, such assertions lack creditable evidence as to where, how and to what extent this is happening.
Thirdly, insurers need to remember that innovation comes in many forms. Deciding on the most appropriate form of innovation may seem like an exercise in corporate strategy and data science, but in reality, it is much more than that. Bear in mind that I have a postgraduate degree in risk and innovation, so I’m pretty confident in that assertion. So what else needs to be taken into account then when weighing up one form of innovation over another.
Watch This Space
Well, I’m going to set that out shortly, after I have presented it in a keynote speech at the Insurance Innovators Claims and Fraud conference later this month. What I can say in the way of preparation is that this technique comes from a highly credible academic source, that it could be used very effective to ‘speak the same language’ as consumer groups and policy makers, and that it is simple and can be evidenced. What more could insurers want?
