This is the first part of a two-part article on the impact of the fourth industrial revolution on reinsurance.
The previous industrial revolutions have had a profound impact on the world as we know it, introducing mechanisation and mechanised production, electrification and mass production, information technology and the knowledge economy, and now we are on the brink of the next industrial revolution, one that will combine electronics, machine learning, data and communications in a way that has never been possible before. If history is any guide, this revolution will lead to massive disruption to the industry leaders, and companies that were thought untouchable will be disrupted, and some will disappear because of the new way of working.
How will the world change?
This is of course the biggest question of all, and whilst none of us can say for sure, what we can do is read some the signs and signals and project some of those into the near future to predict what the 4th industrial revolution (4IR) might mean.
Machines are getting smarter, this isn’t just your imagination … we have reached a point in our technological development where the hardware that makes our computers, our smartphones and tablets is so powerful that it can appear intelligent at least in a limited way (try asking a modern iPhone “hey Siri how far is it to the moon?”).
But machine learning is far more powerful than this, it means being able to observe the world and act, something we’re already seeing in semi-autonomous vehicles on the streets of the US and the UK. This is something that is already having an impact on the insurance sector, particularly on liability insurance.
Machine learning and artificial intelligence (AI) will become an increasing part of business in 4IR, there are already signs of this with IBM’s Watson (yes the same system that won the US game show Jeopardy a few years ago), replacing around 30 per cent of a Japanese life insurer’s claims team.
AI and machine learning will replace roles and tasks that previously could only be done by a person. The opportunity for insurers is to take advantage of these developments, with the most successful being those who can use these new tools to further magnify the efficiency and capability of their people and resources.
Changes in working practices
The gig-economy is something that didn’t and probably couldn’t exist even ten years ago, yet today thousands of people will go to work for themselves utilising their skills for a company that they only know on their computer or smartphone, being given packages of work to complete, be that driving someone from A to B (Uber or Lyft), or perhaps as a handyman for a service such as TaskRabbit.
When these services began, people said and thought that it would be the lower paid jobs that would be disrupted in this way, that’s not the case though, roles that were previously and are still considered to be higher paid roles in software development for example are also being disrupted using services such as Upwork. Innovation long considered something that could only be done by an organisation’s research and development department can be treated in the same way with services such as FreshMinds.
These services are not possible without the mass adoption of smartphones with the ability to communicate via the internet to computers that may be based anywhere in the world.
How does business adapt and take advantage of this new way of working? It starts with awareness. Awareness of the possible, not assuming that because you have a job that needs to be done that the only options are for it to be undertaken by a full-time, part-time or interim resource, that is 3IR thinking. A company that is transitioning to a 4IR company knows that it must look at using fractional services (expertise provided on flex-up and flex-down basis) as well as using the services that the gig-economy offers.
In the next article in this two-part piece, I explore what the changes will be in services and products, and what steps you and your organisation should be taking to survive and transition to this new industrial revolution.
Darren Wray is the chief executive officer of Fifth Step and has more than 25 years of IT and management experience within the financial services and other sectors. Fifth Step operates globally from its offices in Bermuda, London and New York, providing IT leadership, change management, governance services to executives and senior managers within insurance, investment, legal and banking organisations of all sizes.