Editor's Note: The following article has been provided byAdrian Guttridge, the executive director of global insuranceservices at Xchanging.

The ways in which technology can both transform and destroytraditional mechanisms for providing services to customers arefar-reaching. Disruptive technologies specifically need to reshapethe insurance industry. Failure to adapt to these technologies canleave a major insurer looking as obsolete as brands such as Kodakor EMI do today.

Disruptive technology is rapidly advancing, its impact has abroad scope and it has a significant and profoundly changing effecton the global economy. These disruptive technologies that supplantolder processes, rendering old skills and organizational approachesirrelevant, need to be encouraged to advance the insurance industryas they will result in significant economic value. Indeed,disruptive technologies, such as the increasingly establishedtelematics, must be welcomed and have a definite place in theinsurance market. Examples of disruptive technology include mobileInternet, cloud technology and 3D printing. For example,Rolls-Royce recently announced that it was preparing to use 3Dprinters for producing parts for its jet engines. High-value,low-volume industries will be the earliest adopters and they arethe ones that will ultimately benefit. Indeed, it iscounter-intuitive that today the biggest provider of cloudtechnology IT services is a book and CD retailer and that thelargest seller of music is a computer company.

Using Big Data

There are two specific disruptive forces that are very close tohome for the insurance industry. One is Big Data. The ability toharness this will have a significant benefit for those insurancebusinesses that can use it effectively. Insurers already use newdata sources and sophisticated analytics for more accurate pricingof risk and in turn use this information to drive newloss-prevention measures. Where risk has always been priced on thebasis of probability, this exponential growth in data and theability to personalize risk to a more accurate degree takes awaythat broad brush of probability based loosely on geographic data ormortality tables. This means that premiums can now be priced toevery person's or business's risk profile. From a convergenceperspective, the data being collected from a black box in someone'scar could be just as useful to a life insurer as it is to theproperty/casualty insurer. If you're a high-risk driver, prone tospeeding, or driving late at night, your life is likely to be moreat risk than someone whose driving habits are more sedate and whosecar is safely garaged overnight.

The second significant disruptive force to the insuranceindustry is what will come from the wealth of alternative capitalin the reinsurance market. There are estimates that US pensionfunds alone could inject up to $100 billion into the reinsurancemarket by the end of the decade. This wall of capital is going tobe looking for innovative ways to be deployed and reach the endcustomer and it won't respect traditional distribution networks.This will lead to commodity capital insurance trading platformsseeking to bypass the traditional broker role and break up thecurrent supply chain.

The need for businesses to move with the times and turndisruptive technology to their advantage, in the process transformtheir operating model, is not a new concept. IBM used to sellcommercial scales and punch-card tabulators, now it deals insoftware, consulting services and IT services. Nintendo started outby selling gaming cards, now it's video games. Unfortunately, onecompany failed to change with the times: Kodak. It originallyproduced photographic film, now it is bankrupt. Kodak wasunsuccessful because it stuck too rigidly to its traditional model.So, will the insurance players of today soon look as obsolete as,say, HMV? The simple answer is yes, unless they deploy disruptivetechnologies in their favor.

Telematics is an obvious and well-established example of adisruptive technology which the insurance industry is trying inearnest to adopt. By 2017, it's estimated that more than 60percent of the world's vehicles will be connected, activelymonitoring the safety and security of vehicles and drivers.Research carried out in the UK expects that by 2017, 57percent of all drivers in the U.K. will switch to atelematics-based car insurance policy. Any new disruptivetechnologies will have a huge effect on consumer expectations. Thecreation of these new insurance products, which were not possiblebefore, opens them up to potential for new markets such as theburgeoning middle-class areas in Latin America, Asia and Africa. Tomany of these, insurance is becoming more accessible and desirable,thus opening up new revenue streams.

It is clear that disruptive technologies have the capability totransform industries; wipe them out; grow them; shrink them; turnthem upside down and back to front. Industries such as publishing,travel and music have been completely transformed by technology. Wein the insurance industry must ignore these examples at ourperil.