Powered by new digital capabilities such as telematics, big data, blockchain and the Internet of Things, technology startups are playing a big part in the changing face of the financial services market. Consequently, the insurance industry is being deeply influenced by those technological advances along with shifts in customer purchasing behaviours moving through the market.
As a result of these changes, insurtech companies are able to offer more affordable, high-quality and bespoke products to their customers, creating competition for the largest classical insurers. In turn, insurers are trying to keep up with the changing market, and implementing new technologies through partnerships with insurtechs and establishing in-house innovation labs.
Let’s review the main technologies used in insurance today and how they impact insurance as a business.
Big Data and Analytics
Big data analysis is becoming almost a prerequisite for protecting market share in the highly competitive markets of banking and insurance. Big Data and analytics bring significant competitive advantages and contributes to the growth of insurance companies by:
- Collecting information on their customers
- Generating customer insights
- Informing policy formation
- Enabling fraud detection
- Offering threat mapping
- Minimising risks
Insurers are looking into leveraging their internal data combined with hundreds of open data sources. The insights generated can be used for analysis, new product development and identifying those who are more likely to purchase them. Using Big Data to develop personalised offers also increases customer satisfaction. Customers are not called or spammed with unnecessary offers anymore. Powered by AI, data analytics creates a new platform for predicting customer behaviour, and new opportunities for up-selling and high-yield cross-selling of relevant insurance product to a relevant lead.
For example, DFP uses machine learning and data analytics to help insurers interpret their data and achieve better distribution performance enabling sales in SME lines. The DFP Risk Atlas allows insurers and brokers to find new clients, gain insights into their insurance needs, and increase revenue per policyholder.
Another insurtech start-up MotionsCloud focuses on using AI for operational efficiency, reducing insurance claims cost, automating claims processing and significantly shortening the claims cycle.
A chatbot is an effective tool designed for companies working with online customers and through a mobile application. They are useful at handling a large number of similar queries and are popular for home and motor insurance, especially amongst young professionals who use instant messaging applications for everyday communication. Thus, Spixii has designed a framework to lift the lid on insurance chatbot technology in order to automate and personalise insurance products, improve the quality and speed of customer care and claims. Their chatbot Zara, designed for Zurich, allows customers to notify the insurer of a claim efficiently, automatically and quickly.
P2P and On-demand Insurance
The concept of peer-to-peer insurance (P2P) revolves around groups of people or businesses uniting and sharing risks. Peer-to-peer networks reduce the cost of finding customers since groups are formed through social interaction and crowd-sourcing. Brokers are no longer relevant in the P2P model, and thanks to the exchange of information between group members, the insurance system can effectively take responsibility for risk assessment for the entire group. Through the use of social interaction and other network technologies, this unique insurance infrastructure costs less and has a greater user orientation. Lemonade and Bought By Many are two of the best-known examples in the P2P insurance space. Lemonade’s model uses behaviourial economics and technology and uses AI and chatbots to deliver insurance policies and handle claims for its users. Slice is another insurtech that is using a similar approach, offering customised, on-demand, pay-as-you-go insurance products. More recently, Insurance Cloud Services is a business that gives insurers a digital platform to drive experimentation and deployment of on-demand products.
No one doubts that blockchain will become commonplace in the insurance industry. Almost all insurers have already tested this technology as part of creating some kind of insurance product, either by themselves or in partnership with an insurtech. For example, the Lloyd’s insurance market is actively exploring the use of blockchain and has supported several startups in this area. Other insurance giants including Allianz, Munich Re and Zurich have joined up forces and established the Blockchain Insurance Industry Initiative to create blockchain-based products together.
Benefits of blockchain technology:
- Reduced paper workflow
- Efficient claims processing
- Minimising fraud
- Improving the quality of data used in concluding an insurance contract
- Improving the efficiency of the entire insurance process, for example, creating processes with automatic payment of insurance sums.
Telematics services revolve around the use of various technologies to provide services to the driver of a vehicle at a distance. In other words, telematics is an intelligent vehicle management system that is capable of solving the problems of security, remote diagnostics, navigation, fleet management, multimedia functions, access to information and communication.
Telematics can potentially increase road safety, improve driving behaviours, align insurance premiums with actual need via usage-based insurance, and boost profitability in auto insurance sector. Next generation telematics devices can be used as a video evidence of incidents and will play a key role in the efficiency of handling claims for both insurer and policyholder and tackling fraud. Intelimec, one of the leading players in this space works with insurers by leveraging their IMS Insurance Telematics capabilities to collect and analyse data of automotive policyholders. The insights can be used for customising customers’ experience and meeting their needs.
The emergence of “smart devices” and the huge amounts of data they can capture and generate has led to insurers assessing how they operate and required them to evolve to a more customer-centric approach.
So what is the Internet of Things (IoT) and how does it impact the insurance industry? IoT is the network or system of interrelated “things” – computing devices and sensors that can communicate with each other by transmitting data.
Through utilising the data produced by IoT devices, insurers are able to offer customers bespoke insurance policies. For instance, by gaining insights from activity trackers, insurers can monitor individual lifestyles of their customers and provide health insurance quotes, and validate claims based on the data that is being received.
Insurance is on an exciting journey with technology impacting all parts of the sector, from proposition and distribution through to operations. To stay relevant and remain competitive as new innovations spring up, the insurance community is placing more focus on technological innovation as part of corporate strategy.
Majority of the insurtechs entering the insurance industry as enablers helping incumbents to drive new customer experiences and deliver more value by addressing the industry’s challenges. Insurtech cooperation and the ability to adapt is a forward-looking perspective for the industry and a position that more and more insurers are beginning to adopt. Therefore, acquisitions and investments in insurtech are equally beneficial for both parties and present an opportunity to advantage in the insurance market.
The main challenge for traditional insurers is how to drive innovation and be more agile without disrupting legacy-based operations. And those insurers that manage to foster digital agility and deliver a genuine customer value and enhanced experience will succeed in the digital era.
Written by Anna Kurmanbeava