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In an earlier article, we looked at how Augmented Reality (AR) and Virtual Reality (VR) are impacting the insurance industry. VR places users within a digitally simulated environment, while AR overlays digital information onto the real world, enhancing users’ perception and interaction with their surroundings.

Digital Twins take this a step further by creating digital replicas of objects and systems, enabling insurers to make precise predictions about these objects.

These predictions enhance insurance functions from risk assessment, distribution and marketing, to claims settlement and more.

What are digital twins?

Digital twins, which are virtual replicas of physical objects, systems, or processes, are revolutionizing the insurance industry. They use real-time data, advanced modeling, and simulations to create dynamic digital counterparts of real-world entities.

This allows insurers to gain deeper insights into risk management, asset monitoring, and customer behavior, driving more informed decision-making and enhancing operational efficiency.

Insurance is inherently data centric. Traditionally, insurers relied on historical data to assess risks and set premiums. However, the advent of digital twins offers a transformative shift.

By simulating various scenarios, from everyday incidents to rare disasters, insurers can predict and evaluate risks more accurately. This proactive approach enables better preparedness and response strategies, ultimately benefiting both the insurer and the insured.

How digital twins transform the insurance sector

The integration of digital twins and the Internet of Things (IoT) is propelling the insurance sector toward a new paradigm. Traditional insurance models, which focus on compensating for damages, are evolving into assurance models that emphasize risk prevention and mitigation.

Real-time risk mitigation

Digital twins, combined with IoT, enable continuous monitoring of assets and environments. For example, consider a cargo ship equipped with IoT sensors. If a digital twin detects an approaching storm, it can simulate the impact on the ship and suggest optimal actions, like altering the route.

This proactive measure prevents potential damage and reduces the likelihood of claims.

Enhanced customer expectations

Customers now expect insurance companies to adopt technological advancements swiftly. Digital twins facilitate this by providing more personalized and efficient services. For instance, smart homes and connected vehicles generate vast amounts of data that can be fed into digital twins.

With this data, digital twins can predict and prevent potential issues like poor conditions and bad weather that could lead to road accidents. This enhances customer satisfaction and loyalty.

Organizational efficiency

Insurance companies can also create digital replicas of their operations, known as Digital Twins of Organizations (DTOs). DTOs simulate internal processes, predict client behavior, and optimize workflows, leading to improved efficiency and better service delivery.

Examples of digital twins in insurance

Let’s look at some real-world examples of how digital twins are being used in the insurance industry:

• State Farm Ventures: A subsidiary of State Farm, has invested in the computer vision startup Nexar. Nexar uses a vast network of dash cameras to collect and contextualize trillions of images using AI, creating a digital twin of US roads and their surroundings. This AI digital twin platform provides cities, transportation departments, and automotive and insurance companies with real-time updates regarding work zones, road signs, road markings, potholes, and other elements related to road safety.
• Cerebri AI: This startup focuses on seamless integration, handling raw data and engineered features to create model-ready datasets in real-time, and scoring Key Performance Indicators (KPIs) and actions almost instantly.
• Donan Engineering: With a dedicated flood team that monitors catastrophic weather events in real-time, Donan Engineering ensures quick and efficient mobilization of resources and personnel when needed.

Bottom line

Digital twins are transforming the insurance industry by enabling more accurate risk assessment, enhancing claims processing, and improving fraud detection.

By leveraging real-time data and advanced simulations, insurers can provide more personalized services through precise customer profiles, better manage risks, and improve operational efficiency.