Digitalisation will define industry, but risks have to be managed – EIOPA

The European Insurance and Occupational Pensions Authority (EIOPA) has issued new analysis into the level of digitalisation in the European insurance sector.

The findings of the report – based on responses to EIOPA’s 2023 Digitalisation Market Monitoring Survey and insights from a dedicated Eurobarometer poll – show a broad spectrum of practices in the market and point to substantial differences in the digital readiness of individual insurers.

It added digitalisation is increasingly affecting the way (re)insurance products and services are designed, developed, and distributed in the EU. Increasing data flows in today’s digital economy and technological advancements such as artificial intelligence (AI), blockchain and the Internet of Things (IoT) offer wide-ranging opportunities to insurance undertakings, distributors, and customers.

“Still, innovative digital solutions can bring disruption and new challenges, and require adjustment and development in regulation and supervision,” it added. “Given the high number of initiatives being deployed and the speed of developments, monitoring their impact on the market is key for EIOPA and national supervisors.”

The report explained: “Over the past years, digitalisation has had an increasingly important role in enhancing the design, development and selling of innovative (re)insurance products and services through both traditional and new digital platforms and channels.”

While there are significant benefits the analysis added the market had to tread carefully.

“However, digitalisation also brings new challenges, and can create frictions with market practices and regulations not designed with these innovations in mind,” it added. “Given the diversity of initiatives and the high speed of developments, monitoring of digitalisation initiatives in the European insurance sector and assessing opportunities and risks have become an increasingly important priority for EIOPA and its Members.

“Against this background, in 2023 EIOPA launched an EU market-wide survey aiming to better understand the dynamics, opportunities, and risks associated with ongoing digitalisation projects in the European insurance sector. The findings of this survey are summarised in this report and are complemented with inputs from a Eurobarometer survey providing customer’s perspectives on certain digitalisation aspects.”

The report presents the results of this market monitoring exercise together with insights from a Eurobarometer survey on customers’ attitudes to digitalisation.

Its key findings are:

  • The level of digitalisation among European insurers is varied and, in most cases, still at an early stage.
  • Digital-only distribution channels still lag well behind physical or hybrid ones. This is especially true for life insurance products where consumer prefer in-person meetings even though online tools are also used to compare products or get more information about certain offers.
  • Phone calls, emails and face-to-face meetings are the most popular communication channels for the moment, but the use of chatbots is expected to rise significantly, not least of all due to the emergence of generative AI.
  • Most insurers are active on social media and use this channel to interact with customers and to launch marketing and educations campaigns – on occasion in collaboration with influencers.
  • Most insurers have active commercial relationships with BigTech firms. Nearly 80% of the respondents use BigTech companies for cloud storage services.
  • Artificial intelligence is already used by 50% of the respondents in non-life insurance and 24% in life insurance. Most current solutions have been developed in-house for simpler tasks with more explainable algorithms that retain human oversight. The expectation is that the use of AI will considerably increase in the years to come.
  • Other technologies such as the Internet of Things, blockchain and parametric insurance are currently only used by a small number of insurers.
  • Insurers reported growth in the cyber insurance market over the past two years even though many cyber insurance products still exclude certain risks.
  • Insurers see acquiring adequate talent and skills as central to a successful digital transformation. Lack of such talent and skills is seen as a major barrier to implementing digital solutions.

“Digitalisation brings significant opportunities both for customers and insurance undertakings, including faster, more efficient, and automated processes,” it stated. “While customers with different profiles have diverse shopping habits, they generally appreciate the convenience of more tailored products and faster processes or being able to shop and search for information about insurance products online on a 24/7 basis from any location.

“The trend towards the increasing digitalisation of the insurance sector is expected to progressively continue over the years to come. Major discontinuities in this process cannot be completely ruled out in view of rapidly evolving technological developments. Taking into account the evolving nature of the digitalisation landscape as well as legislative developments such as the Artificial Intelligence Act, the Digital Operational Resilience Act or the Financial Data Act, the findings of the present report will support EIOPA in evaluating risks and benefits for the market and customers, assessing and designing regulatory measures where EIOPA is so empowered, enhancing supervisory convergence and supervisory oversight, and ensuring that stakeholders harness the benefits of digitalisation while safeguarding customer protection and financial stability in the markets.

“These inputs will feed into EIOPA’s recently approved Digital Strategy, which sets out the Authority’s strategic objectives in this area and guides its digitalisation work for the years to come.”

Most insurers are active on social media and use this channel to interact with customers and to launch marketing and educations campaigns – on occasion in collaboration with influencers.