Imagine the COVID-19 pandemic without access to innovative digital tools. The effects of the virus and the resulting lockdown measures on lives and livelihoods would have been incalculably worse had so much activity not moved online. The speed at which individuals and businesses have implemented digital solutions has also contributed to recent increases in the forecasts for global economic recovery.
The pandemic has only served to speed up trends that had already begun, such as remote working and businesses and services moving online to meet the growing expectations among consumers of round-the-clock access to online products and services. Such shifts, of course, bring not just benefits but also challenges. These challenges to digital resilience include: how to avoid or reduce malicious or accidental cyber risks; how to ensure the security and privacy of often highly personal data; and how to implement new rules without hampering innovation, so that consumers and businesses can trust and embrace digitalisation.
The European insurance industry welcomes the European Commission's ambitious plans to shape Europe's digital future and create what it calls “A Europe fit for the digital age”. Those plans are so ambitious that perhaps the greatest challenge is to bring the many initiatives together into a coherent, effective whole. Much work is underway and further initiatives are in the pipeline on:
- artificial intelligence (AI)
- cloud computing
- digital finance
- other digital areas
EC digital strategy: three streams of action
- Technology that works for people
- A fair and competitive digital economy
- An open, democratic and sustainable society
“Innovative tools are particularly helpful in detecting the insurance fraud that costs insurers and their honest customers an estimated €13bn a year.”
WHAT INSURERS CAN DO
Insurers have long invested in new technology and digital solutions to improve their operations and the products and services they offer consumers. Indeed, that is why Europe's insurers have been able to maintain business continuity and continue to support customers during the pandemic.
The use of new tools and technologies has many potential benefits for insurance consumers:
- Improved communication channels with their insurance providers, including the possibility for round the clock assistance.
- Easier access to information, products and digital services, thereby widening choice.
- Products and services better tailored to the needs and demands of consumers.
- Improvements in speed and efficiency in the delivery of insurance services, with the potential for lower transaction costs. In April 2021, one of Europe's largest insurers announced a new AI solution that it says will allow it to cut the time taken to settle property claims to under 24 hours. And this is just one of many such examples.
- The potential to reach new or wider groups of consumers, such as young digital natives, which can lead to higher levels of financial resilience.
Motor insurers: driving innovation
Take the motor insurance sector as an example; consumers are benefiting from a range of innovative products and services, many if not all of them predicated on insurers' access to driver data. One is “pay as you drive” and “pay how you drive” policies that are tailored to driving frequency and style and can improve road safety and result in premiums that better reflect how and how much an individual drives. Others include speedier claims-handling and sophisticated claims-related services, such as the recovery of stolen vehicles and advanced breakdown assistance.
Intelligent ways to tackle fraud
Innovative tools are particularly helpful in detecting the insurance fraud that costs insurers and their honest customers an estimated €13bn a year. Insurers across Europe are increasingly making use of big-data tools to detect cases of fraud by cross-matching data from different databases, such as those of tax authorities. There are many local examples of the use of new technology to tackle fraud: in Sweden, for instance, insurers use advanced key-readers to confirm that car keys submitted in support of a claim for a stolen vehicle do indeed belong to the vehicle alleged to have been taken.
And let us not forget that insurers provide insurance and risk-management expertise for the risks from new technologies or products or the malicious malware, data breaches or phishing to which businesses can be exposed. You can read more about this in our Cyber resilience article.
“Appropriate EU regulation should foster trust and confidence in consumers' digital use, support innovation and allow cross-border growth and competition.”
WHAT POLICYMAKERS SHOULD DO
The EU regulatory and supervisory framework for insurance should be conducive to innovation and allow consumers and both established and new companies to benefit from the opportunities that digitalisation can offer.
This is currently not the case. There are regulatory barriers to providing insurance online. For example, there are requirements for paper documentation in the Insurance Distribution Directive. And the EU's world-leading data privacy legislation, the General Data Protection Regulation (GDPR) creates legal uncertainty over — and limits the potential use of — blockchain and distributed ledger technologies, which have the potential to reduce costs, increase transparency and strengthen trust in insurance.
Rules that properly consider the specific characteristics of insurance
With the progressive digitalisation of the economy, new digital rules will affect business sectors in a way that may not have been foreseen by legislators. For example, the proposed e-Privacy Regulation currently being discussed by the European Parliament and Council needs to include a clear legal basis to allow insurers to continue to offer innovative insurance products such as telematics-based motor insurance.
After setting the global regulatory pace on data privacy with the GDPR, the Commission is now doing the same for AI, recently unveiling legislation aimed at regulating the use of AI across sectors. Attention will need to be paid to ensure that these new requirements fit well with the strict insurance regulatory framework that already exists (see next section) and that they do not hinder the use of AI in insurance and deprive consumers of its benefits.
In relation to civil liability and AI, Insurance Europe believes the existing EU liability regime, the Product Liability Directive — in conjunction with national tort law — works well for new and emerging technologies and that there should be no major changes to this regime.
Avoid overlaps and inconsistencies
The EU's ambitious digital agenda and the many regulatory initiatives that are planned create a very real danger of duplications or inconsistencies between horizontal and sectoral initiatives, as well as between new and existing requirements. This would increase red tape and legal uncertainty, and ultimately hamper innovation. A key priority for policymakers should therefore be to ensure a coherent regulatory framework, with financial services legislation, rules and guidelines that are sufficiently future-proof to be fit for the digital age. Rather than automatically introducing new regulation to achieve this, policymakers should review how existing rules might be adapted.
Same risks, same rules
As new service providers are tempted into financial services by new technological opportunities and consumer behaviours, it is important that they are as comprehensively regulated and supervised as existing financial services companies. It is crucial that the principle of “same activities, same risks, same rules” is respected to ensure that consumers enjoy the same level of protection regardless of their provider.
Respecting this principle must be a vital part of the proposal for an open finance framework that the Commission is expected to put forward by mid-2022.
It is crucial to have an EU data strategy that allows the benefits of data usage to be maximised, while still protecting and respecting individuals' rights. Enhancing the legislation on access to, processing and sharing of data is important in order to promote innovation and competition. Promoting a data-driven financial sector is an important and valuable aim. The insurance industry is supportive of efforts to facilitate appropriate data-sharing, in which the treatment of different players is based on a true level playing field. Furthermore, it is paramount that customers have absolute confidence in the security of their data and full control over the data being shared.
A concrete example here is the need to safeguard the current interplay between the e-Privacy Directive and the GDPR in relation to the collection and processing of data from terminal equipment to ensure the needed flexibility to process personal data in situations where relying on consent is not possible.
And Insurance Europe welcomes the Commission's efforts to improve the effectiveness of the Regulation on electronic identification and trust services (eIDAS Regulation), extend its benefits to the private sector and promote trusted digital identities for all Europeans.
Quality over speed
Insurance Europe welcomes the Commission's prioritisation of digitalisation and its efforts to address some of its challenges through legislation. The Commission plans to deliver on most of its regulatory initiatives in this area by the end of its mandate, ie 2024. Care must be taken that the fast speed at which some of the initiatives are going ahead do not lead to badly thought-through or untested legislation that could inadvertently harm innovation and fail to take into account the very specific characteristics of highly specialised and unique sectors, such as insurance.