He said that the music industry became the first to bear the brunt of digital disruption, with file-sharing websites taking out about half of the revenues previously earned through CD sales.
Instead of embracing the model, industry executives headed for the courts, Vandendael said, but 20 years later industry giants like Warner Bros and Universal have rebounded – due in no small part to increasing revenues from music streaming sites like Spotify.
The insurance industry now faces similar challenges, with many customers using price comparison sites as a first port of call, potentially weakening direct relationships between brokers and consumers.
Vandendael said that digital technologies offer substantial benefits, with better data leading to more accurate pricing of risk and better risk mitigation.
“While all of this is, of course, good news for the customer, it could impact insurers by reducing premiums,” he argued.
A study published by McKinsey in March last year, for instance, said that car insurance premiums in the United States are likely to fall by 25 percent by 2035 due to the proliferation of autonomous and semi-autonomous vehicles.
“In the meantime, telematics are helping insurers align risk pricing with real world driving data,” Vandendael said.
He added that while insurers are figuring out how to get to grips with the data they already hold, “there are companies out there using data analytics to create new products and entirely new business models”.
Disrupting the supply chain
Eric Andersen, chief executive of reinsurance company Aon Benfield, said that a combination of data and analytics with new sources of alternative capital is disrupting a traditional supply chain which previously saw business move via brokers to insurers, reinsurers and old-fashioned sources of funding.
Alternative funders, he argued, are backing brokers and insurers to use smarter data to write more of their own policies, meaning that potentially less business is passed back to reinsurers. At the same time, reinsurers are funding new distribution models to give them direct access to consumers.
“There's a reason why there's only one or two pure-play reinsurers left in the market. And chances are there will be none five years from now. Because ultimately they are too far away from the risk. What they are trying to do is move closer and closer to that original customer,” Andersen said.
He said that although 2017 was “a very difficult year for reinsurers”, capital continued to pour into the sector.
Funding from alternative capital sources (including private equity, sovereign and hedge funds) has increased from $22 billion in 2007 to $90 billion last year, Andersen said.
“As alternative capital has pushed into the marketplace, it has separated the price setting and the ownership of capital,” Andersen said.
“Historically, you needed to own big equity or debt capital on your balance sheet to be in a position to price risk. With the advent of insurtech and data analytics, that is separated today.”
A study published last month by Willis Towers Watson said that investments made in the insurtech sector increased by 36 percent in 2017 to $2.3 billion.
In an opening address to last week's conference, the chief executive of Dubai International Financial Centre Authority, Arif Amiri, said: “In the past ten years, technological advances have transformed business models in every sector and the insurance sector is no exception.”
He added that “there's a lot of interest and a lot of money flowing into this sector, which means change and innovation is a critical element of how we do business in the insurance industry”.
“These changes are disrupting the established markets and also changing the way we do business. People probably see this as a risk but I think equally its opening new opportunities,” Amiri said.
(Reporting by Michael Fahy; Editing by Shane McGinley)
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