By Edward Iwata
Since the dawn of the Internet Age, technology giants have stormed into old industries. They’ve revolutionized business models. They’ve even crushed some traditional companies. Could the same scenario unfold in the insurance field?
A recent PricewaterhouseCoopers report warns that if traditional insurers don’t move quickly to capture the cyber insurance market, technology giants such as Apple, Google and Microsoft could invade their turf and rock the multibillion-dollar industry, ThirdCertainty.com reports.
The report finds that the cyber insurance market is “still largely untapped,” as many insurers and re-insurers remain wary of offering cyber policies to clients because of the risk of high-loss exposure to cyber attacks.
But PwC cautions that insurers face another big risk: losing opportunities with younger consumers in the “potentially huge” cyber-insurance field, which is projected to grow to $7.5 billion in gross written premiums by 2020. Cyber insurance premiums worldwide could grow 20 percent a year to $20 billion by 2025, according to a recent report by global insurer Allianz.
“If the industry takes too long,” PwC analysts write in their report, “there is a risk that a disruptor could move in and corner the market by aggressively cutting prices or offering much more (favorable) terms.”
Exploiting a niche
Millennial consumers in their 20s and 30s are more likely to trust Google and Apple than traditional insurance companies, PwC Insurance Partner Paul Delbridge told Reuters. “I can see Google being very creative,” Delbridge says.
Technology and telecom firms—Apple, Google, Microsoft, Verizon and others—could limit risk in cyber insurance and other business coverage in a variety of ways. With their raw data on companies and consumers, they could crunch statistics, build actuarial tables, and analyze risk better than traditional underwriters, say Derek Gabbard, president of FourV Systems, and Casey Corcoran, a partner at FourV.
With more expertise in cyber security than insurance firms, the tech companies could set up firewalls, encryption and other state-of-the-art security measures for corporate clients. Their vast data on suspicious users’ activity and unusual network traffic would detect possible cyber threats to businesses much earlier than insurers could track it.
Poised to make inroads
The tech companies could send real-time weather and traffic alerts via mobile devices and GPS to steer drivers away from storms, flooding and other natural disasters. They also could analyze consumers’ lifestyles and health habits using the data from “wearable” tech products such as the Fitbit activity wristband.
“Apple and Google have huge steps over traditional underwriters who are trying to piece together and understand this data,” Gabbard says. “Once they’re established in cyber insurance, it would not be a big leap to life, auto and health insurance.”
But skeptics say that even the richest technology companies face huge obstacles in entering the insurance and cyber insurance realm.
Insurers stand ground
They’ll face strong competition from the insurance and banking industries, which boast global brands, large business infrastructures, and hundreds of millions of loyal customers. Financial service firms also have offered online products for years, and they’re unlikely to welcome tech giants onto their turf.
“Writing and selling insurance is a big undertaking,” says Joseph Salpietro, head of IDT911’s cyber claims department. “Can they find a niche in the industry? Absolutely. But can they rival AIG and Marsh and Lloyd’s of London? I don’t believe that will become a reality.”
Technology companies have flirted with financial services through the years, and eventually might drift into the insurance world to offer cyber, life and general-liability coverage, but that won’t be for a long time, says analyst Rob Enderle of the Enderle Group.
“Insurance requires a great deal of expertise in terms of understanding risk,” Enderle says. “While tech firms should be really good at estimating that risk, the other aspects of the business will likely be foreign to them.”
Edward Iwata writes for ThirdCertainty.com, where this story originally appeared.