08 September 2017

OECD: Technology and innovation in the insurance sector

Innovation through new technologies is a key driver of change in the financial sector - the insurance sector is no exception to such developments, with possibilities of new methods of service provision as well as greater opportunities for data collection and fraud detection, which are being referred to as “InsurTech”.

This report catalogues the relevant technologies that are being viewed as having the potential to bring innovation to the insurance sector. How InsurTech is being funded is examined, as this indicates which markets are actively investing in start-ups and how insurers are engaging with start-ups. Case studies are made of insurance start-ups, and how blockchain technology, sharing economy, robo-advice and data aggregation are influencing the insurance sector is discussed. The manner in which insurers engage technology to ensure better compliance with regulation is also examined.

Innovation and new technologies have the potential to affect the franchise value of insurance companies, with accompanying competition policy considerations. Policies which have tailored coverage and simplified claims processes can improve coverage to segments of society that hitherto were not able to access financial protection. Regulatory approaches, such as the regulatory sandbox being developed by a number of jurisdictions, may bridge greater competition and prudential requirements, although ensuring a level playing field as solutions graduate into the full market require some consideration.

There are a number of areas in which greater regulatory discussion should take place, as the transparency of the technology and the impact on policyholder’s choice and rights may not be clear. Data protection is an area that will require closer examination by regulators, as the volume of personal data handled by insurers increases, whether consensus was gained for the intended use becomes blurred. Data aggregation brings forth the possibility of certain segment of the population becoming uninsurable, so how data is harnessed should be closely considered. The treatment of algorithms is also an area for further discussion to ensure that the assumptions built in are appropriate and unintended consequences are avoided in so far as possible, and regulators have a means of engaging in this assessment. These could have implications on the ongoing monitoring of operational risk and internal control of insurers. Ensuring that policyholders are fairly treated and appropriately protected when the implications of certain innovations and technologies are uncertain will be important going forward.

As emerging markets have less of an established distribution network of insurance, innovation and technology may have the greatest impact in such markets. Nevertheless, whether developed or emerging, appropriate regulatory monitoring should be carried out to ensure that the welfare of policyholders is safeguarded.

There are number of ways in which regulatory approaches could be considered for InsurTech, but as well in the wider FinTech realm. The OECD is engaging with FinTech issues in a number of ways, and further areas of discussion are proposed. This report is part of a wider project by the OECD on FinTech developments, as well as the OECD horizontal project on Seizing the Benefits of Digitalisation for Growth and Well-Being.

Full publication

© OECD