The insurance industry has been around for centuries and people have relied on it to protect their assets, provide peace of mind, and recover from the unexpected. But now, insurtech is taking over and shaking things up.
What is insurtech? It's a combination of insurance and technology that enables insurers to use data collected from sensors in order to reduce fraud, increase productivity, and make better underwriting decisions as well as other benefits.
According to a study by PWC, “Insurance is indeed heading down the path of disruptive innovation, whether it is the effect of an external factor, such as the rise of the sharing economy, or the ability to improve operations using artificial intelligence.”
There are some major changes happening in the market due to insurtech companies that are challenging many aspects of how insurance companies operate. This article provides a brief overview of what these companies are doing and why they have become so disruptive.
Insurance technologies being implemented include:
The use of telematics technology is a means for insurers to reward safer drivers by providing them with reduced premiums. There are now even products available that allow the insurance companies to collect the data and provide it to their customers online where they can monitor their own driving performance and make improvements accordingly. This benefits the insured by reducing their premiums and the insurer with a reduction in claims.
The Association of British Insurers (ABI) states that, “The technology may be in the form of a computer built into the car, it may be a small device – commonly known as a ‘black box’ – that is fitted by the insurer, or it may be a smartphone app.”
Insurers are using advanced algorithms to improve the underwriting process and provide better customer analytics. This benefits insurers by reducing time spent on manual tasks such as checking paper documents, while also improving efficiency and accuracy of processing claims.
"What steam power has been to industrial manufacturing, Artificial Intelligence will be to insurance. Ask yourself this question: What would have happened to your manufacturing business after 1800 if you had never used steam? True innovators are those who look into the future and act before it arrives!", notes a research paper by Deloitte.
Blockchain technology is being used to create efficient claims management, greater security of data and reducing fraud. This provides many benefits for both the insurer and consumers by disrupting the current system that can be time consuming, prone to errors and offers low transparency.
An investigation by the University of Cambridge found that, “Where there has been adoption, the key driver is a need to replace paper-based processes, digitise end-to-end business processes and increase trust in the value chain. This only scratches the surface of what the technology is capable of.”
The use of chatbots and robo-advisors provides automated services to consumers, enabling them to better understand their coverage and letting the bot deal with repetitive questions that are typically directed at call centre agents. This reduces costs for insurers because it reduces the number of support staff needed, while also improving customer service by giving people easy access to information at any time.
“Soon, hybrid models of robo-advisors will hit the market. They will be equipped to assist intermediaries in their day-to-day operation while structural transactions will be performed / approved by human supervisors.”, according to Infosys BPM.
The prediction market is much like betting on the stock market, but instead it is used to place bets on future events in order to gain insight into what may happen. Insurtech companies are analysing data in an effort to determine how different variables will affect risk profiles for insured people and come up with probabilities of certain things happening in the future. This benefits customers who will be offered more accurate information on the probability of events occurring while insurers can use it to determine more accurate premiums.
A survey report by Willis Towers Watson shows that, “The use of predictive analytics - the application of data and analysis techniques to gain more accurate insights to run businesses and enhance customer experiences - has grown in selected pockets of the Americas' life industry in recent years. But our latest survey shows that growing competitive pressures and changing customer expectations, in particular, are raising the stakes and building momentum for future investment.”
Internet of Things (IoT)
The IoT is a means for insurance companies to monitor and track the condition of insured assets, gather data on usage habits, predict when devices may fail and more. This provides many benefits for both the insurer and customers by reducing claims costs that result from accidents or poor handling of devices.
“IoT has the potential to unlock new business models based on data-driven insights. IoT empowers businesses with data which reciprocates into customers through value-added and personalised services. Insurers need to embrace an ecosystem-based approach for innovation amid the rapidly evolving technology landscape.”, according to an analysis by Capgemini.
The use of virtual reality can provide a unique view of a product that can be used to determine the condition of a device and provide more accurate information on how it may perform in the future. This provides benefits for both consumers by allowing them to better understand what they are purchasing, while providing insurers with increased ability to price products more accurately.
An inquiry by KPMG notes, “We believe the usage of AR and VR devices should increase exponentially in both the consumer and commercial space over the next few years. For many businesses, these technologies could be seen as an interesting new tools to improve customer experience and drive efficiency but also recognize that customers require peace of mind that they are protected should something go wrong.”
Insurance companies are already using wearables to gain better insights on their users and provide a better experience. For example, in the healthcare sector, Vitality Health uses wearable watches to track their insurers footsteps and gives them rewards such as cinema tickets when they reach certain milestones. This type of technology is not only making its way into the workplace but also into homes where it is used to measure behaviour and to monitor how healthy a person is living.
On this topic, Hannover Re established that, “insurers can embed wearables into ongoing customer engagement platforms that support positive habit formation. Research finds using motivational techniques alongside wearable devices helps users to sustain changes in health-related behaviours, such as increased physical activity levels."
Drones are another technology that is now being used by insurance companies to assess safety and property damage claims such as floods, fires and landslides. They can provide accurate information about the location of events, identify damage and help determine insurance payouts faster than ever before. The importance of aerial data is becoming increasingly important in the insurance sector.
Research by Genre indicates that, “If the industry can fully embrace their potential, drones will accelerate processes, facilitate quality checks, assess problems and suggest alternatives – whilst reducing workloads and improving the efficiency of human resource allocation. It’s an exciting time for drones, and we will be watching their progress closely.”
Why are insurtech companies disrupting the insurance industry?
Insurtech is disrupting the insurance industry by offering new, efficient and effective ways for people to get their insurance. They have been doing this in a few different ways, including:
Insurtechs are working with technology companies that collect data from wearables which can help commuters determine if they need specific types of insurance. This has resulted in the ability to offer insurance at a lower cost because it is based on a person's individual needs and behaviours rather than a general risk profile.
They have also been disrupting the industry by taking advantage of emerging technologies such as mobile applications that can enable people to purchase products from their phones. In an age where everything from financial advisers to health care providers are available online, people want their insurance in the same way that they purchase other goods and services.
By working with technology companies that offer wearables and drones, insurtechs are able to create products that provide the level of accuracy and detail needed in order for insurance companies to provide accurate quotes, payouts and policies. They are doing this by collecting data that will be used to understand things like traffic conditions, road quality and even specific risks in different geographical locations.
Insurance technology offer a number of benefits for both the insured and the insurer, including:
- Increased transparency: Insurance companies that provide customers with a range of insurers to choose from based on a variety of factors including price and coverage.
- Better claims: Companies that allow people to get their insurance online which ensures that the product will be cheaper because it is streamlined.
- Increased operational efficiency: The use of technology allows insurance companies to improve their entire process from finding the right policy for a customer, reducing the time it takes to pay out a claim and even to determine when they can offer new products.
In summary, insurtech is disrupting the insurance industry in a number of different ways and it will continue to do so as this form of technology continues to develop and mature.