Financial technology (fintech) firms could make a significant breakthrough in the insurance industry in 2016, according to the Institute of Risk Management (IRM).
Among its risk predictions for 2016, the institute singles out the entrance of fintech firms in insurance as likely to "fundamentally alter how the insurance sector operates."
Investment in fintech firms with insurance-specific services (insurtech) accelerated in 2015 and a handful of insurtech accelerator programmes were launched, which aim to fast-forward the development of start-ups with the help of industry expertise (IERM, 10 December, InsurTech start-ups plot disruptive change).
The IRM predicts that cloud-based offerings will challenge current insurance business models in the same fashion that low-cost airlines challenged the travel industry 15 years ago.
Argo Group's chief risk officer Alex Hindson said: "what happened with the aviation industry 15 years ago has now started to impact the personal lines insurance arena, but has yet to develop at the small to medium enterprise end of the corporate market."
He said that insurers can mitigate the threats posed by insurtech entrants through the "development of a digital strategy by either internal investment or partnering with key solution providers to protect against this scenario."
Harnessing big data analytics is one of the more immediate actions that primary insurers in particular might want to focus on as consumer electronics become increasingly more attainable.
"With the cost of devices used in applications such as telemetrics coming down rapidly, the internet of things has gained in importance and I guess if you are not in that game you are going to lose out," Hindson said.
"Looking more on the horizon from an emerging risks point of view, there is the entrance of driverless cars, which takes motor insurance in a slightly different direction.
"Insurers need to understand opportunities and threats associated with these developments on each company's strategy, product mix and distribution chain."
IRM board member and senior risk director at RGA UK Socrates Coudounaris said this is likely to be the year that insurers are challenged by new digital competitors, and that incumbents must adapt to a new playing field.
"Companies are struggling to move away from their traditional business models and become mobile and social media enabled. In order to reach their customers, companies will need to push their boundaries outside the traditional face-to-face engagement," Coudounaris said.