Finnish insurance celebrates its 200th anniversary this year. The industry that grew from its origins in the Turku fire insurance bureau is now facing the challenges of digitalisation and changing customer behaviour. We asked three insurance experts whether insurance is still generally regarded as a solidary product and how the insurance sector will be changing in the future.
Is the fundamental idea of solidarity and mutual risk sharing of insurance still alive in the minds of people?
Pekka Puustinen
“If we presume that people actively think about it, then yes, I believe that the idea of insurance as mutual risk sharing still very much subsists. However, insurance solidarity is under entirely different pressure. People increasingly question whether they want to share the life insurance risk with smokers or the loss risk with drivers. The same goes for the operation of traditional insurance companies, who have become more and more picky about their clientele. Risky customers are either not accepted or their insurance policies are priced so high that they become unfeasible. The solidarity of personal pension insurance has also been the topic of concerned discourse in which one generation wants better benefits at the cost of the other. Pension insurance is, and must be, an inter-generational agreement between past, present and future generations.”
Jarna Kulmala
“People may be looking at solidarity in a different light than in the early days of insurance. It has emerged as a kind of trump card in private insurance, however. Mutual insurance companies, for example, actively market the benefits of their customer-owned model. The budding phenomena of peer-to-peer insurances and other insurance services formed around small groups of people have brought solidarity back into fashion.”
Jyri Liukko
“Especially in the context of private insurance, I suspect people do not think of insurance as an instrument of joint responsibility or risk sharing. In social insurance this kind of thinking is more established, albeit not as a given. For example, statutory employee pension is often conceived of as a kind of postponed salary, and the risk-sharing element that arises with disability for work, death of a breadwinner, or a longer lifespan is sometimes forgotten.”
Mention three major changes that will affect insurance services in the near future.
Pekka Puustinen
“By far the biggest change is in the role of insurance from a mere payer of compensations to active risk prevention. The change has been made possible by technological development, and it has taken place in life, non-life, and pension insurance alike. This is a good change. Another one is automatisation, which drastically changes the contents of various jobs in the insurance sector. The third change takes place over a slightly longer period, and it concerns the risks themselves as well as how the risks are allocated. With robotics and automatisation, liability becomes blurred. Someone other than the driver will be responsible in a driverless car, for example.
Jarna Kulmala
- “Changes in customer behaviour. The appreciation of digital services and their additional services will continue to rise. Instead of turning to expert advice, many will independently research the relevant details and then compare products and services based on that.”
- “New sector participants. Traditional companies are joined by tech companies and online stores that provide insurance services. A large number of start-up companies are also looking for a way in to the insurance value chain. To hold their own in the intensifying competition, traditional insurance companies need to find the right partners from among the new entrants, with which they can bring additional value to their own business.”
- “Technological development. With the progress of robotisation and the Internet of Things, different devices and systems get connected to each other, and this impacts risk assessment and risk management. Robots and interconnected systems need to be insured differently than humans. On the other hand, technology will also enable the provision of entirely new kinds of insurance services in the future.”
Jyri Liukko
“The largest changes will probably be related to the utilisation of Big Data, personal risk assessment, and technological development in general. Secondly, the Finnish social welfare and health care reform may have significant effects on insurance services. The insurance sector is also changed by the cooperation between insurance companies and health care providers.”
What kind of innovation would be most called for in the insurance sector right now?
Pekka Puustinen
“Insurance is one of the core areas of the economy. Without insurance, we can have no business, because risks will always exist. However, a merely monetary compensation for a risk is not the best alternative for any of the parties. Best innovation lies in risk prevention. In my own innovation work, for example, I am motivated by the goal that Finns would have better work wellbeing and uninterrupted careers. This would allow companies to increase their revenue per employee regardless of the size of company. Higher productivity per employee is a prerequisite for our economic growth.”
Jarna Kulmala
“We need innovations that can tie in insurances as part of our daily lives so that insurance, risk management and compensations work together seamlessly and effortlessly. It is not enough that we pay annual insurance premiums and then receive compensations after damages have occurred. Insurance services must become so integrated that customers feel they genuinely benefit from their insurance. Maybe they could be risk management innovations! Such innovations might require collaboration with new kinds of companies.”
Jyri Liukko
“The utilisation of personal risk data is changing the world of insurance. We need to figure out how we can still offer collective insurance services for as broad audiences as possible, with terms and conditions that are considered fair and just. The statutory and voluntary insurance of long-term care services is another area that needs innovation.”