The rapid adoption of technology in Luxembourg’s insurance industry is reshaping competitive dynamics, with non-users facing increasing disadvantages. Discussions at Thursday’s ACA Insurance Day 2023 highlighted the critical impact of technologies like cloud computing and artificial intelligence on the sector.
The technology revolution transforming industry worldwide is now even affecting the more traditional Luxembourg insurance industry. Only a short few years ago, Luxembourg’s financial sector was very sceptical about using the cloud over information security concerns. Today, it’s so widespread and powerful that those who don’t use it risk being left behind.
Habib Guergachi, an independent board member at the Foyer Group, listed what he saw as the 5 most transformative technologies. He suggested that we should imagine technology as a wave. “Imagine, at some point, the waves are going to resonate and that’s when, in general, a change occurs, there’s a break.” For him, artificial intelligence is already starting to “allow humans to avoid doing what they don’t want to do, what they shouldn’t do, what they can’t any more.”
Guergachi also underlined the importance of data. “All companies that want to approach data technology and must absolutely ensure that any data used in the company must be defined as if it were in a dictionary and a company that tomorrow manipulates data without having defined it like describing it is like a laboratory that puts a drug on the market and has forgotten to simply reference an active ingredient or a car manufacturer that puts a car on the market having forgotten to reference a part.”
The rise of data
While data as a technology is already well over 20 years old, the business world has recently paid much more attention to it in isolation from the necessary hardware. The technological developments in the data area focus attention on new concepts such as information capture, data lineage, data quality, data visualisation and virtualisation. “The convergence of these technologies means that today data technologies have a lot of traction on the financial sector,” said Vincent Arnal, Lulux Group CIO.
Patrice Witz, a technology and digital partner at PwC Luxembourg pointed to studies showing that 75% of companies surveyed plan to move their operations to the cloud in Europe within two years. “There’s a real trajectory on the cloud in Europe,” he commented. “Cut yourself out of this possibility of having access to innovation in the cloud and lo and behold, this is a potential problem for the insurance company in terms of competitiveness.”
As for artificial intelligence, he said “this is something that is going to have a profound impact on the insurance and financial sectors.”
Question of prioritisation
With so many new technologies coming to the fore, Jean Elia, the CEO of Sogelife, said it’s becoming a question of prioritisation for company leaders. “You have to change, you have to transform. It’s not a question of whether to invest in it, it’s when to invest in it and at the expense of what other projects?”
The rise of the API – application programming interface – as a subject of digital transformation seems “primordial” to Elia. “It’s important to be able to communicate with stakeholders to be able to what I call ‘digital talking’,” which he distinguished from talking about digital.
Higher-value tasks
But he emphasised that all this is not about replacing humans.”It will replace humans on redundant tasks, tasks that have no added value or have little added value for the human,” he said. “So that employees can work on tasks, or work in general, with more value.”
Asked to come up with a message on this subject, Guergachi elicited laughter and some shock when he announced that “if there is a goal to be achieved it’s to create a culture in which passion and trust in the company are such that if you tell employees they won’t be paid anymore, they will still come to work the next day.”
Despite the focus on the opportunities brought by these new technologies, frequently there are side effects or market failure risks, such as the risk of digital exclusion, that draw the attention of regulators. Valérie Mariatte-Wood, the head of the consumer protection department at insurance and pension regulator the European Insurance and Occupational Pensions Authority, or Eiopa, with a 25-year career in Luxembourg. was well-placed to comment.
Regulating market failure
As much as new technology is coming to the fore, the regulatory response is developing almost as quickly. Marratte-Wood discussed the Financial Data Act (Fida), the Artificial Intelligence Act, the Digital Operational Reliance Act (Dora) and the Markets in Crypto-Assets Regulation.
Discussing the AI Act Marratte-Wood explained that “the use of AI in insurance processes like claims management or risk acceptance “creates a black box risk because it is very difficult, with a result created through artificial intelligence, to do reverse engineering and to understand the algorithm that led to the decision.”
She said the specialised skills involved in understanding AI will pose “an additional difficulty to the supervisory authority, which itself will have to equip itself with these skills.”