Digital Twins – Taking Your Risk Management to the Next Level!
Digital Twins – Taking Your Risk Management to the Next Level!
A digital twin represents a real entity in digital form. It is effectively a replica of physical assets, processes and systems described by data that helps organizations understand, predict and optimise their performance. As an exact digital replica of something in the physical world, digital twins are made possible thanks to IoT (Internet of Things) sensors that gather data from the physical world and Artificial Intelligence (AI) which allows these sensory data to be reconstructed.
In the process of building a digital twin, a computer program takes real world data about a physical object or systems as inputs. It produces as output, predictions or simulations of how that physical object or system will be affected by these inputs. It combines design and engineering details with operating data and analytics about anything from a single part to multiple interconnected systems to an entire manufacturing plant. Digital twin models gather insights from a safe distance. They allow analysis of data and monitoring of systems to head off problems before they even occur.
Although airspace and defence industries have pioneered its adaption – in fact, the first definition of digital twins was forged by the NASA in 2010 – the advances in IoT technology and AI have made this technology affordable and accessible to many more businesses. Digital twins are undoubtedly one of the most impressive technological innovations at present and it is foreseeable that industrial production lines and buildings will be made more and more efficient as well as more predictable with the help of these technologies.
The future belongs to the digital twin
Deloitte forecasts the global market for digital twin technologies will reach USD 16 billion by 2023 and according to a new report by Grand View Research the global digital twin market size is expected to reach USD 26.07 billion by 2025. Chevron expects to save millions in maintenance costs through the use of digital twins, which will be deployed in oilfields and refineries by 2024. Boeing has been able to achieve up to a forty percent improvement in first-time quality of the parts and systems it uses to manufacture commercial and military airplanes by using the digital twin asset development model and “Aviatar” is a new digital platform from Lufthansa, which enables airline operators to digitally monitor the health of its aircraft and manage maintenance operations. Digital twins have even been used in Formula 1. In a sport where every second counts, simulation can help the driver and the maintenance team to identify what adjustments can improve performance.
A big opportunity for the insurance industry
The insurance industry could also take advantage of this technology as it creates opportunities for insurers to reduce costs and improve overall operational efficiency. Insurers can use data from insured locations to assess and mitigate risks, document claims, refine pricing and offer new products/services, all of which help increase operational efficiency and revenue growth.
The resulting benefits from the digital twin technology for risk management are manifold. They extend not only beyond pure data acquisition, but go so far that the entire risk management process can run in real time. Predictive maintenance is one such analysis method that addresses the idea of enabling proactive risk management in industry. A marine insurer would theoretically be able to create predictive models of how likely a vessel is to have engine problems and how likely the owner is to file a claim. In addition to the concept of predictive risk management, which focuses on future risk scenarios, real-time reporting can be used to support current decisions.
Digital twins can help reduce costs and speed up the process of damage documentation. With the help of digital twins, claims can be processed regardless of location, therefore reducing travel time. If, for example, a warehouse in Shanghai burns out, the damage documentation can be carried out from Hamburg with the help of digital twins. The employee would then no longer have to fly to China. In addition, the process could be made transparent to other parties involved. This not only leads to faster and significantly more cost-effective processing, but also to greater customer satisfaction. Ultimately, this also has a corresponding effect on the relationship between the policyholder and the insurance broker.
Implementation will take time
While the possibilities which the digital twin technology offers to insurers look interesting, it is not expected that the insurance companies will use this technology in the near future. It is more likely that, just like the new digital players in the financial industry, the so-called FinTechs, more agile, nimble players will also take a significant share of the insurance industry market. These players will more quickly combine IoT with AI to offer much more personalised insurance products that better cover risks and therefore potentially offer a price advantage over the incumbent players. This does not mean that the established insurers cannot respond effectively. Basically, the established insurance companies have a competitive advantage, because they have huge amounts of customer data and case histories. The successful management of risks has always been based on the evaluation of relevant information. Data affinity is part of the insurance industry. Besides that, the insurance companies also have the financial strength to implement new digital technologies. The challenge will be to discard the old methods and this will take quite some time.
In addition to these more industry-specific reasons, there are other reasons why timely implementation is not expected in some countries, i.e. Germany in particular. The main reasons: Data protection and security. Trust will be a very important success factor for the implementation of digital twins in the insurance industry. It is expected that the implementation of digital twin technology will further increase the importance of cyber insurance.
Besides that, it remains to be seen which regulatory requirements the legislator will impose. In the past, governments have been late to address security and trust concerns that the digital age has brought up. Countries are at different stages of policy and regulatory development when it comes to industry 4.0.
Digital twins represent a key advantage for the insurance industry in making data and information readily available. In particular, the timeliness of data can improve the efficiency and effectiveness of the risk management process. In this context, the analysis and predictability of data as well as real-time reporting offer a number of opportunities for digitization to bring about changes in the process. To what extent insurance companies will jump on this bandwagon in the near future remains to be seen and ultimately depends on themselves. Most likely other players will enter the market. The use of this new technology will probably also raise demand for cyber insurances. Digital twins are a future issue for insurance brokers: The benefits can lead to greater customer satisfaction and brokers can thus position themselves as the customer’s “trusted advisor”.