Insurance has been around for centuries, but the emergence of insurtechs is challenging traditional insurance models. That's because they are able to use new technologies to offer innovative solutions that are more cost-effective and better suited to the needs of today's consumers.
According to Vrinda Johnson, Managing Director at Raines International, "InsurTech has taken the very traditional, almost stoic Insurance industry and has turned things inside out. It has brought the focus back to the end consumer (the people, the insured), prioritising consumer needs, customer experience, and ease/speed of use, and continues to innovate by leveraging technology across the operational spectrum and insurance process."
The next wave of insurtech companies could be even more disruptive, thanks to their ability to combine old forms with new technologies in ways not possible before. "This is exciting and fun to see and be a part of – automation, speed to market, drone technology, instant underwriting and contracting, digital account management – these are just some of the areas InsurTech has brought us. With this backdrop, I am even more excited to see how the industry will build on AI and ML capabilities and introduce even more innovation in process, product and experience," added Vrinda.
Disruption means change, but it doesn't always have to be a bad thing. In fact, insurtechs could provide the industry with exactly what is needed in order to keep up with modern demands and stay relevant into the future.
The overall advancement of technology has added a new dimension to the insurance game
There are several explanations why the next generation of insurtech businesses may be more disruptive, mainly owing to the fast rate at which technology is growing as a whole. Shantanu Tewari, Head of Insurance Practice at Newgen Software, thinks that "the Insurance industry is on the verge of a disruptive innovation and start-ups focused on revolutionising the way people buy insurance and how insurers manage risk is challenging the traditional insurers to innovate."
Distributed ledger technology (DLT)
Blockchain technology, for example, is responsible for decentralising transactions, increasing security and doing away with intermediaries. This level of innovation has allowed insurtechs to access new markets they wouldn't have been able to otherwise. According to a Society of Actuaries (SOA) report, "the most enticing use of blockchain technology may be in the development of completely new business models and products. This is especially true due to the zeitgeist of the times with changing consumer preferences evident in the rise of the sharing economy."
Richard G Brown, Chief Technology Officer at R3, believes that insurers have always been very creative in terms of product offerings, but legitimate criticism of the sector is that it has been sluggish to react on the technological front. He said, "This will change in the future, as we will see an acceleration in blockchain technology adoption – across consortiums as well as non-consortia initiatives like parametric insurance, cyber insurance and beyond."
"More specifically, connecting brokers, insurers and reinsurers on the same blockchain network can provide many benefits. Near-instantaneous communication between participating parties can eliminate delays associated with reconciliation and coordination and also lead to real-time consensus on terms and conditions among all parties in the contract. Instant communication can also help to reduce IT spend for individual firms and achieve greater regulatory compliance throughout the industry."
Artificial intelligence (AI) and machine learning (ML)
Yet, the leading example of broader disruption in the insurance sector comes from the rise of artificial intelligence (AI) and machine learning (ML). Combining these developments provides an opportunity to automate not just rote tasks but also cognitive ones such as identifying risk exposures or claims fraud. There is a lot of data out there and more coming from underwriting and the Internet of Things (IoT), social media, and other sources. The opportunity with AI/ML is to use all this information in order to provide insights that can help insurers provide better products and services.
"Given the above context, insurance carriers are increasingly leveraging new-age technologies like artificial intelligence, machine learning, and analytics to improve their internal processes, transaction accuracy, and intelligent decision making. This has increased their efficiency and automated operations in areas including customer service, underwriting, and claims processing. Insurance companies are also leveraging behavioural analytics and advanced data analysis capabilities to understand individual behavioural trends better to develop customised solutions and fast-track customer service," added Tewari.
Remote video conferencing and document processing
The popularity of remote video conferencing is also a significant change in the insurance business. In fact, such apps have already become mainstream, with far-reaching consequences for customers and employees across sectors. For employees, this has meant a significant reduction in travel time and costs since they can now hold meetings from the comfort of their homes or offices. For customers – especially those working during traditional business hours – it also means no more waiting for an appointment at short notice; you can book your meeting online and attend it at your convenience (even after office hours).
According to Simon Huften, President of LifeInsuranceCanada.com, "COVID pushed many insurance companies to make significant changes to their processes not only with their clients and employees but also with sales agents. In addition, with many employees working from home, life insurance companies had to adapt to working with their own employees without an office environment. They also had to overhaul the client experience, which meant the introduction of electronic applications and policy documents. This meant that sales agents could now complete insurance applications with their clients over the phone, through Zoom and by email. In addition, electronic signatures were now allowed, and many companies adopted the use of software such as DocuSign."
The use of statistics and algorithms to analyse current patterns in order to forecast the future is known as predictive analytics. Insurers are increasingly using such techniques to determine which customers are likely to switch carriers or buy more products, and then developing strategies based on these insights. For instance, they may focus less effort on retaining low-value clients in favour of those that generate higher profits for them over time. Predictive analysis can also help insurers identify and address areas where risk exposure is high, such as by offering discounts to specific customers.
According to Eugene Agranovich, Founder and CEO, Premium Choice, "Predictive analytics is probably the hottest thing in marketing analytics right now. Predictive analytics go beyond describing consumer behaviour to predicting how consumers will behave in the future based on data. They predict behaviour rather than simply reporting on it. Predictive analytics lets you target and retain customers by using data, statistical algorithms, artificial intelligence (AI) and machine learning (ML) tools to predict the probability of future outcomes. It empowers you to transform existing data into future insights."
As the insurtech vertical continues to grow and advance, it is clear the traditional insurance model will be forced to evolve to keep pace. There are still several aspects of this scenario in which the preceding wave of change has had little effect. However, with the next generation of insurtechs looking to move into the market, it is clear that this might no longer be the case.
"The next wave of insurtechs will focus on integrations. We've seen an explosion of new and compelling technologies to help assess risk, launch innovative products, and deliver standout customer experiences, but it's a fractured ecosystem built on top of outdated legacy software. To take advantage of these opportunities, insurers will need a modern core platform with well-documented APIs and real app marketplaces that allow them to integrate with the best insurtechs with the click of a button," concludes Matt Hamilton, Director of Product at Socotra.