At a glance

  • This blog is a preview of our upcoming report Insurers’ digital business models: how to meet supervisory expectations. The report will provide practical guidance on how insurers can address key supervisory concerns associated with digital transformation.
  • In the report, we explore key supervisory considerations in relation to four of the most important digital trends in the insurance market; these revolve around product innovation, process automation, delivering customer-centric experiences through digital platforms and data sharing. We consider how supervisors will scrutinise potential risks from insurers’ digitisation strategies through the lens of seven universal conduct and prudential supervisory ‘constants’.
  • By anticipating these risks, insurers can implement their digitisation strategies in a way that meets regulatory expectations by design, reducing risks of future rework, remediation and potentially even redress costs.

Who should read this blog? Executives and non-executives working across the strategy, risk, regulatory affairs, and compliance functions in the insurance sector, in particular those working in personal lines.

Reading time: 5 minutes

The case for change – four ongoing digital trends

Insurers need to adapt their business models to the evolving digital insurance landscape or risk being left behind in a rapidly changing and increasingly competitive market. However, at the same time they need to be proactive in demonstrating to their supervisors that they have appropriate risk and control frameworks in place to mitigate risks associated with digital transformation.

So how is the insurance market transforming? In our report, we identify four digital trends, underpinned by a number of technological enablers, that are transforming the insurance business model and, ultimately, the industry. These are:

  • Consumer expectations, along with evolving technology, are changing insurance product dynamics and creating a greater demand for usage-based insurance products;
  • Technology-driven automation is streamlining core insurance functions, in particular the claims management process;
  • Increased focus on combining products and services into customer-centric experiences, delivered digitally through online platforms;
  • New ways of interacting with, and sharing, data are transforming the marketplace.

Each of these trends presents opportunities to transform insurance product offerings and/or distribution channels to meet changing consumer needs, but also has potential to give rise to risks for insurers, customers and the insurance sector. Like any other major change, supervisors will focus on how these digital trends could affect their objectives, and enhance scrutiny or take action where they see firms at risk of falling short of meeting these.

Seven universal supervisory constants 

Supervisors’ concerns in relation to insurers’ digital transformation are not novel, but instead revolve around seven universal supervisory prudential and conduct considerations or ‘constants’ through which supervisors will assess insurers’ digital business models. These are:


Supervisory constant

Example areas of supervisory scrutiny


Pricing/value for money

Do you have sufficient human oversight and control built into your digital pricing models? How do you tackle issues of discrimination and bias? Do your insurance products deliver value to your customers?


Consumer understanding and communication

How do you make sure that customers are aware of the scope of their insurance policy cover, and are not at risk of over- or under-insurance?


Operational resilience

What are the operational resilience risks in the new digital world and how do you need to change your thinking around these? What could go wrong in the execution of your digital transformation project?


Customer vulnerability and disenfranchisement

How does increased digitization affect vulnerable customers and what is your strategy to manage the risk that they are “left behind”?


Product suitability

How do your product development and design processes consider customer interests? Do your customers receive sufficiently clear information about how your digital products work? How do you ensure products remain appropriate for your customers?


Governance and accountability

Do you have sufficient oversight of technology-enabled and automated processes, and appropriate human controls in place? Have you made a senior executive accountable for managing the risks associated with digitization?


Model risk management

Are your technology-driven models well understood? What expertise do you have amongst senior individuals within the firm to challenge and question model outputs?

Conduct risks clearly emerge at the top of the regulatory and supervisory agendas when it comes to digital. In a nutshell, supervisors will want to ensure that customers understand the digital products they purchase and get value for money, that there are safeguards in place to protect personal data, and that vulnerable customers are not disenfranchised by increased digitisation. Insurers’ digital strategies and associated risk and control frameworks should therefore put the customer’s best interests first; in particular, they should identify where in the digital insurance value chain there is potential for customer mistreatment or unfairness, and outline specific controls and management actions to mitigate these risks effectively.

Next steps 

We will publish our report, which will look at each of the areas above in more detail, in June. We will dive deeper into the four digital trends, and for each of these, outline key supervisory concerns and actions insurers can take to anticipate supervisory scrutiny. In the meantime, please let us know if you would like to discuss this topic in further detail, or to receive the report directly once it is published.