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Lecture21.md

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Lecture 21 - 18/12/18

Intro

  • There used to be a division between who offers banking and insurance products
  • Now the same company can offer both - there is more generalised 'financial services' these day
  • There are two areas where tech is having a big effects
    • Insurance - InsureTech
      • Calculating and offering insurance
    • Regulation - RegTech
      • Specifically regulating of the financial services industry
      • Both enforcing regulations and spotting anomalous behaviour
      • Traditionally involved a lot of human labour, but is actually very amenable to automation

InsurTech

Insurance has straightforward minimal mathematics -

  • Some loss event $L$ that requires a payout $C$ as compensation
  • $N$ customers all want to insure against $L$
  • $P$ is expected number of payouts per year
  • If all $N$ customers pay a premium $\frac{CP}{N}$ each year, all should be well in the long run
  • As $N$ grows large - individual premium payments get smaller, estimates of $P$ get more accurate
  • If total income exceeds payouts, surplus can be invested or returned
  • A reserve fund is maintained to cover $> P$ payouts per year
  • Insurers buy reinsurers to spread the risk of large payouts

Example - "New Realities"

With the rise of VR/AR and mixed-reality - there are some new cases for insurance, and these are covered under InsureTech - KMPG estimates that these risks could cost businesses £20 billion annually

Risks include -

  • Human risks
    • Physical risks - people becoming disoriented and injuring themselves
    • Mental risks - no long-term studies on what the effect of this will be - possible it may affects mental health
    • Digital consent - laws and liability are not defined in the "metaverse"
  • Data risks
    • A range of data will be more susceptible to fraud and malicious acts e.g. biometric data, emotional data
    • Underlying legacy systems could be vulnerable to data and cyber breaches

It should be noted that a lot of this is conjecture - we don't yet know what the actual risk is

Possible InsurTech Applications

  • Claims - AR/MR headsets to conduct damage assessments
  • Talent - help to attract new talent to the claims profession
  • Underwriters - technology used to examine assets without needing to be onsite
  • Brokers - help with analysing a client's risk profile
  • Product developers - new insurance policies for new technologies