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INNOVATION | 07.04.2024

The use of digital twins in the insurance industry

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Imagine your insurance company offers you an auto policy 100% tailored to your needs and risk profile. A policy that considers how you drive, how often you use your car, and the routes you take. This is not just a vision of the future: it’s already possible thanks to data, AI, and digital twins.

We are living in a time where technology continually pushes the boundaries of what’s achievable. “Digital twins” are now being consolidated as a revolutionary solution with enormous transformative potential in many sectors, including insurance. By leveraging real-time data, advanced modeling, and machine learning, digital twins enable informed decision-making and enhance risk management.

Digital twins are especially attractive for the insurance industry, streamlining key processes like precise risk assessment, optimized claims handling, and personalized policy offerings. This technology also facilitates the simulation of intricate risk scenarios, such as extreme weather conditions, enabling insurers to better comprehend vulnerabilities and proactively tailor their products and services accordingly.

Investment in digital twins has surged notably, reaching billions of euros in 2022, with expectations for sustained growth through 2030, according to recent industry data.

Benefits of digital twins in the insurance industry

In the insurance industry, the ability to anticipate scenarios and carry out simulations is decisive. Digital twins are a powerful tool for simulating extreme events. By digitally modeling the real environment, data and technology teams can analyze highly complex situations such as natural disasters or traffic accidents. This enables insurers to predict the outcomes of these events and develop proactive strategies to mitigate their impacts.

This technology also significantly enhances the customization of insurance policies, improving customer service and optimizing risk management. With this, creating synergies with other solutions like data analytics and geographic information systems, insurers can gather and analyze detailed data on policyholders and their surroundings. This enables the creation of precise and dynamic virtual replicas of the risks they face, facilitating targeted interventions.

Another benefit of using digital twins is the creation of precise user profiles. Using information from diverse sources such as behavioral insights from IoT devices, medical records, driving habits, and living conditions, digital twins can meticulously build a detailed profile for each policyholder. These profiles not only reflect current risk but also dynamically adjust in real-time as conditions or behaviors evolve.

With these detailed profiles, insurers are able to offer policies that precisely match the individual needs and risk profiles of each client. For instance, in the context of car insurance, a digital twin could analyze factors like vehicle usage frequency, driving habits, and common routes. This makes it possible to offer personalized insurance rates that more accurately reflect actual risk compared to traditional methods.

This personalized approach benefits customers by providing tailored offers that potentially meet their needs more effectively and at lower costs. Simultaneously, insurers can optimize their risk portfolios. By aligning policies more precisely with real risks, insurers can mitigate overexposure to high-risk claims and enhance overall profitability.

An example of the application of digital twins can be found at CESVIMAP, MAPFRE’s R&D center. In collaboration with SIMULYTIC, a startup within the Siemens group, this center is working with digital twins to simulate different scenarios and predict the potential risk of autonomous vehicles that are developing traffic tests in different real environments. The initiative allows to analyze in advance, what could happen in these environments in situations for which there is no real history.

“One of the most critical aspects of vehicle claims management is determining their cause; it is essential to know how the accident happened,” says José Antonio Maurenza, head of the traffic accident reconstruction department at CESVIMAP. “As MAPFRE’s R&D center, we use digital twins, leveraging laser technology (3D laser scanners), mobile devices with lidar sensors, drones, and photographs to construct these twins. This technology enables us to work in low visibility areas — such as garages after a fire — and create simulations that accurately depict the analyzed incident,” he adds.

What impact do they have on sustainability?

Digital twins are revolutionizing sustainability in the insurance sector by facilitating the adoption of more sustainable practices and ensuring compliance with environmental, social, and governance (ESG) criteria. This technology enables insurers to simulate and predict the environmental impact of their activities, adjust policies to promote sustainable practices, and optimize resource use, thereby reducing their carbon footprint.

ESG criteria, which evaluate ethical and sustainable business practices, are becoming increasingly important in the industry. Digital twins provide valuable tools to measure and manage these aspects, helping insurance companies better meet the expectations of regulators, investors, and consumers.

In short, digital twins are already playing — and will continue to play — a crucial role in the insurance sector. The ability to accurately simulate and predict complex scenarios will enable the industry to respond appropriately to claims and, more importantly, manage them more proactively, creating a positive impact on both the economy and society.