Digital twins offer improvements in core insurance practices such as underwriting, claims processing and fraud detection. Moreover, digital twins combination with the Internet of Things (IoT) can change the insurance industry that has existed for centuries, as they can prevent damages before they occur.
Learn what the digital twin is, why it is important, how digital twin insurance change the sector, and which insurance practices can be improved through digital twins:
What are the digital twins and why are they important for insurance companies?
Digital twins are computer-made copies of real things—like a person, a building, or a car—that help us see how they work or change over time. They help companies create simulations or exercises which help to derive “virtual data”. Insurance is inherently a data-centric business, and Accenture argues that implementing digital twins as a data source represents a breakthrough innovation for the future of the insurance sector.1
Until the introduction of modern technologies, insurance companies could only use historical data for risk assessment. Thanks to simulations, insurance companies can assess their readiness to deal with rare disasters such as volcanic eruptions, large earthquakes or floods, pandemics, and so on. From this perspective, digital twins provide a virtual platform for insurance companies where any risk scenario can be predicted and evaluated.
Source: Cognizant2
How do digital twins transform the insurance sector?
Digital twins and Internet of Things (IoT) technologies are reshaping insurance. Traditional policies that compensate for damage after an event are being replaced by proactive risk reduction services.
A Shift from insurance to assurance
With digital twin technology and IoT, insurers prevent or mitigate risks instead of just covering losses. This new model, called Assurance, focuses on damage prevention rather than compensation.
Preventing damage before it happens
Digital twins use real-time data to predict and prevent potential risks.
Example:
- A ship carrying goods receives telematics alerts about an approaching tropical storm.
- The ship’s digital twin simulates the storm’s impact using real-time data.
- Based on the simulation, the captain decides to return to port, avoiding damage.
- The same approach can apply to smart cars, smart homes, and other connected assets.
Meeting customer expectations
Customers expect insurers to adopt new technologies and protect their assets before damage occurs.
The role of digital twins in operations
Insurers also use digital twin of an organization (DTO) to improve efficiency.
DTO Benefits:
- Predict client behavior to enhance services.
- Simulate catastrophic events to prepare better responses.
- Automate processes with Robotic Process Automation (RPA) for higher efficiency.
- Analyze process data from event logs to optimize operations.
By leveraging digital twins, insurance services can improve both risk management and internal processes, making insurance smarter and more proactive.
Which insurance practices can be improved through digital twins?
The following insurance practises can be enhanced thanks to digital twins:
- Underwriting: More accurate prediction of the future risks thanks to data streams via simulations.
- Claims processing: Expedited claims processing thanks to computer-assisted replication.
- Fraud detection: Using the data provided by the IoT, replicate the environment in which the damage occurred and assess whether or not the claim is fraudulent is possible thanks to the digital twins.
Underwriting
Digital twins lead insurance companies to expand their datasets. Underwriting is the process by which insurers price risk. Therefore, risk assessment is the core of underwriting. Risk assessment is related to the computational power and volume of data evaluated. The simulation capability of digital twins improves the underwriting process and enables insurance companies to set competitive premiums.
Thanks to digital twins, insurers can expand the data set they had for everyday risks such as car accidents, heart attack or house fires, but they can also collect data for catastrophic events that occur very rarely. For example, an insurance company can estimate the potential damage of an earthquake that could happen in California.
Claims Processing
How claims are processed affects not just how smoothly the company runs, but also whether customers feel treated fairly and quickly. Since claims are liabilities to insurance companies and customers expect a quick response when they experience an undesirable situation, it pays to improve the process.
Thanks to digital twins and telematics, it is possible to reproduce the conditions of the damage that occurred, and using this data, it is possible to simulate the accident and its impact on the property. This helps to speed up the claims processing and reduces the necessity for expert examination.
Engineers can regularly check the success of their damage simulation. In small car accidents, for example, insurance company chatbots instruct customers to take photos and videos of the damage to create a damage report. By comparing real and virtual damage reports, engineers can improve their digital twins.
Fraud Detection
When people cheat the insurance system, honest customers end up paying more. This happens because fraud drives up the cost for everyone.3 So improving fraud detection is for the good of all involved.
Thanks to digital twins, some of the fraudulent claims could be detected. As we discussed above, it is possible to reproduce the damage-causing event using digital twins. It is plausible that the simulated claim may not perfectly reflect the real damage. However, with a known standard deviation, the real damage can be replicated. As a result, statistically inconsistent claims can be more closely examined by insurance companies to determine whether fraud is involved or whether the digital twin model decays.
How do digital twins impact sustainability in the insurance industry?
Digital twins already play a vital role in insurance. Their ability to simulate and predict complex scenarios allows insurers to respond more effectively to claims and take proactive measures. This benefits both the economy and society.
Digital twins are transforming sustainability in the insurance sector by promoting eco-friendly practices and ensuring compliance with environmental, social, and governance (ESG) criteria.
- Predicting environmental impact: Insurers can simulate and assess how their activities affect the environment.
- Encouraging sustainable policies: Policies can be adjusted to support greener practices.
- Optimizing resource use: Improved efficiency helps reduce the industry’s carbon footprint.
Supporting ESG compliance
ESG criteria, which measure ethical and sustainable business practices, are becoming more important. Digital twins help insurers:
- Track and manage ESG performance.
- Meet the expectations of regulators, investors, and consumers.
Further readings
You can also read our selection of 5 insurance/insurtech articles
- Top 5 Insurance Technologies & Their Use Cases: This article highlights the impact of five key technologies, namely Deep Learning, Natural Language Processing, Internet of Things, Blockchain, and Digital Twins on everyday insurance practices such as underwriting, claims processing, customized insurance policies, and fraud detection.
- 3 Ways Blockchain will Change Insurance Sector: This article explains how blockchain technology is changing the insurance sector with a similar structure to the article you read.
- Small Business Insurance: An Emerging Industry for Insurers: We believe that SME insurance will be the future of commercial insurance. To find out the latest trends on SME expectations, you can read this article.
- Top 7 Innovative Insurtech Companies: Detailed Guide: Introduces 7 innovative insurtech companies that implement a variety of technologies to enhance insurance practices.
You can also check our articles on Digital Twins:
- Top 5 Use Cases of Digital Twin in Automotive Industry
- The Ultimate Guide to Digital Twin Applications in Supply Chain
- Best Digital Twin Applications & Use Cases in Healthcare
- Ultimate Guide to Top 6 Digital Twins Use Cases in Manufacturing
- 15 Digital Twin Applications/ Use Cases by Industry
It might be also beneficial for your company to check our top insurance suites and digital twin software lists.
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