Insurtech refers to technological innovations that are created and implemented to improve the efficiency of the insurance industry. Insurtech powers the creation, distribution, and administration of the insurance business.
Venture capitalists are interested in insurtech because the insurance industry is well poised to take advantage of disruptive and innovative technology. Insurtech helps large insurance companies explore new options outside of traditional human efforts. This could include dynamically-priced insurance policies, small business insurance, and social insurance options. Insurtech also provides insurance companies access to data streams from IoT devices. This creates a dynamic pricing system based on market conditions and customer behavior.
Customers today access their insurance needs from their smart devices. Phone apps, auto-monitoring devices, and wearable technology all form a part of the tracking tools for insurtech, helping people get insurance in a matter of minutes. A sudden travel plan will require insurance immediately, and the last thing a customer wants to do is wade through a pile of policy documents when they should be packing. Customers desire accessible mobile options that quickly summarizes coverage, liabilities, and premium information. Similarly, start-ups may require insurance coverage for a day or even for a few hours. Insurtech can help do that.
Additionally, insurtech has helped insurance companies become more efficient in underwriting, processing claims, and managing assets. Today, insurtech capital investment is largely focused on big data, AI, and IoT devices.
Components of Insurtech
There are two main types of insurtech implementation: technology-based components and solutions-based components.
From the Technological Perspective
Here are some of the technologies that are currently used in the insurtech field:
Artificial intelligence (AI)
AI automates human functions for quicker and more accurate responses. For example, an AI-powered chatbot may help a potential customer navigate through a site and settle on a product.
Machine learning (ML)
Machine Learning is a subset within AI. Insurance companies collect vast amounts of data that can extract valuable information on their customers and what they may need. Collected data can be risk modeled (when data is used to predict future losses). Demand modeling can estimate premium amounts and predict demand.
Internet of Things (IoT)
IoT devices are connected to the internet, and this data can be collected and used in risk analysis. For example, a taxi company has all its vehicles fitted with GPS trackers. These trackers can record the car’s speed, braking pattern, and location to predict safety and accident risk analysis. Similarly, data collected from wearable technology like Fitbits or Apple watches can be used to analyze health risk patterns. Insurance companies can even consider offering potential customers discounts for using such devices.
Apps can be designed for individuals or businesses. Insurance apps help streamline the process of choosing policies and make things easier for customers and the insurer.
Drone technology is used in aerial surveys to inspect properties in dangerous zones such as those prone to earthquakes, liquefaction, erosion, or storm damage. They can even inspect and document building or vehicular crash sites.
Blockchain technology improves data security standards and builds a sense of trust between the insurer and insured, while bringing down transaction expenses. This technology frees human resources, quickly processes claims, and increases the quality of data collection.
With data analytics, insurance companies can get deeper insights into customer needs and targeted products and services. They can process claims quickly and customize marketing to each client, giving them a competitive edge over other insurers.
From the Varied Solutions Perspective
Some insurtech solutions are related to quotations, payment options, appetite solutions, or claims solutions:
Appetite solutions can help brokers and agents find a specific policy for a client across a range of providers. This improves the efficiency rate of the agents, makes transactions easier, and also offers several options for insurance providers to consider underwriting.
Considering the insurance industry is vastly driven by data, companies need to leverage their data better. With data solutions, systems are connected, allowing users to gain access to actionable data.
The claims and payment segment of insurance is an important area to automate. Payment solutions digitize systems and enable customers to make their payments easily. Keep customers happy by smoothing out the payment process, which leads to better business prospects.
Traditional policy quote processes can be tedious and frustrating for customers. Quote solutions allow agents to simply upload information into the system, giving back a pre-approved quote. This cuts down the waiting time for both the agent and customer–who may be evaluating multiple options.
Key Applications of Insurtech
Here are some key insurtech applications:
Verification of Customer Identity
The Know-Your-Customer (KYC) process is an important aspect of customer identification that has to be completed by insurance companies, reinsurers, and brokers. Insurers have to collect all counterparty information to verify identities, which means dealing with a sizable amount of data. Insurtech can offer much-needed relief here. Some insurtech companies have used blockchain to develop prototype software that stores customer identification details from issuing authorities. This enables an insurance company, the reinsurer, and the broker to have complete control over all customer records.
Companies can use blockchain technology to create a standardized claims document–evaluated by underwriters in real-time. They can also automate smart contract elements, ensuring its execution is flexible and transparent. This strengthens relationships between customers and insurers.
Smart Contract Formulation
Smart contracts have automated protocols that make it simple for documents to be authenticated, negotiated, and even enforced when needed. In the case of a life insurance policy pay-out, the system automatically looks through death registers online, ascertains the validity of the claim, and initiates the pay-out–without troubling the grieving family. Smart contracts increase the speed and accuracy of clearing claims. Companies can register contracts, run authentications, and clear claims much faster, without the need for an assessor. This reduces the likelihood of fraud and increases customer satisfaction.
Detecting Fraud and Risk Prevention
A large number of claims are fraudulent. The investment required to manage fraud effectively has historically been extremely high. With insurtech, companies can detect and eliminate the chances of fraud with a decentralized digital depository. This verifies the authenticity of the individual and the claim, safeguarding against duplicate transactions or third party interferences–enabling all transactions to public record.
Insurance companies must have the ability to streamline premiums and claims. For example, auto insurance policyholders draw payments based on the miles driven. A telematics system inside the vehicle records these miles in real-time so the premium can be calculated and paid. This not only simplifies the process, but also reduces errors.
Benefits of Insurtech
The benefits of insurtech are manifold for consumers and insurers:
For the Consumer
Empowering the consumer: Insurtech is driven by consumers and enables them to place value on any aspect of their life. It allows for the inclusion of family, friends, and others from the community in comprehensive coverage. Consumers are a part of the process from registration to claims and can even determine who sits on the claims jury panel for a hearing. This enhanced level of knowledge and engagement benefits customers.
Convenience and ease of access: Today, most consumers do all their work through their cell phones. They expect the same mobile ease when it comes to insurance. Insurtech is mobile-friendly so consumers can compare, verify, and make decisions, all from the comfort of home. They can check on the status of claims from a personal device, saving time for consumers and insurers.
Increased security and customization: With insurtech, companies set stringent anti-spamming and security policies to ensure the confidence of consumers when they transact online. It also allows the insurance organization to collect and analyze data from clients, enabling upgraded offerings and customized products.
For Insurance Providers
Insurtech can save the insurance sector time and money:
- Save time and money by keeping fraud at bay–particularly in customer identity verification and anti-money laundering
- Simplify underwriting by automating information collection and assimilation into record
- Introduce newer methods of insurance distribution such as peer-to-peer (P2P) insurance–where groups of customers pool together premiums as insurance against any risk
- Promote innovative new products with smart contracts that go beyond traditional claims
- Automate claims, reducing errors and automatically enforcing contracts
Barriers and Solutions for Insurtech
The main barrier to insurtech is the issue of privacy. Distributed ledger technology is a shared database across multiple organizations and sites, used to keep track of credit scores. It is constantly changing, which poses issues for data protection laws. International jurisdiction privacy concerns are also an issue for regulators who have multiple approaches to distributed ledger technology management. Due to its collaborative nature, distributed ledger technology may be decentralized, which means no one organization can be held accountable when disputes arise. This makes it a challenge to fully incorporate into insurtech.
Organizations who are interested in this technology should research the strategic legal aspects applicable to their company and jurisdiction. Another solution is to remain in constant touch with regulators to stay updated on global regulations.
Insurtech is revolutionizing insurance by providing customers and service providers a seamless, error-free, and safe way to conduct business. To best benefit customers, insurance companies need to invest in new technology and customize solutions based on individual needs.