Now, more than ever, new and innovative solutions powered by technology are taking precedence in the insurance industry. The old, largely non-tech, insurance model that was popular with the baby boomer generation is slowly dying out.
The restructuring in the industry is fueled by the fact that millennials are close to outnumbering baby boomers as the largest consumer group in the world. Unlike baby boomers, millennials are digital natives whose needs can only be met by incorporating technology.
Millennials value convenience; they desire that companies and organizations provide services across a myriad of platforms. In particular, they prefer mobile or phone solutions that allow for self-service as opposed to face to face consultations or calls.
Moreover, this is a generation that loves personalized or custom-made solutions which means insurers have no choice but to up their game. That is where insurtech comes in.
What is insurtech?
Insurtech is the use of emerging technologies such as the Internet of Things, artificial intelligence and machine learning to develop new insurance models that are tailor-made for individual clients and that are also more cost-effective.
The insurtech industry is relatively new, but it is steadily gaining ground. In 2018, the British insurtech industry received $1.7 billion worth of investments.
Across the world, the story is similar, and experts predict that come 2020 and beyond, the insurtech industry will fully cement itself as the go-to solution for insurance. That said, here are four key trends that are bound to revolutionize the industry.
1. Internet of Things
Despite some naysayers, the Internet of Things(IoT) is here to stay. The IoT market is expected to double in the next two years, and by 2021, it will be worth $520 billion. With such immense potential, insurers are taking note.
IoT comprises of everyday devices such as your smart fridge or Fitbit, that are connected to the internet. These devices are constantly collecting data and information about you—from how many steps you take per day, your heart rate when working out to how well you sleep at night.
Such personal information is invaluable to insurers because it can help them predict risk more precisely. So far, insurance companies have relied on indirect indicators of risk such as age, gender, and occupation and IoT devices in the form of wearable tech is ready to turn that upside down.
However, with information from IoT devices, accuracy increases. Consider an example of a car insurance company that has information on how fast you drive, which areas you frequent (are these areas dangerous?), and the time of the day that you use your car often (is it day or night?).
Another good example is that of a life insurance company that can access information on your eating habits and your fitness habits or lack thereof. With this kind of information, both insurers can estimate the risk more accurately and come up with an insurance plan that perfectly fits the individual.
Note, however, that when it comes to trusting your insurance company with such a massive amount of personal information, privacy becomes a huge concern. To what extent can you really trust the insurer? Research is ongoing, and laws are still being drafted on how far is too far but at the moment; IoT privacy is something you must take in your hands. One way to do so while on the go is encrypting your mobile data stream with an Android or iOS VPN before you turn on hotspot for other IoT devices.
2. Artificial Intelligence
AI is yet another emerging technology that is hugely affecting the insurance industry. AI is making insurance operations more efficient and increasing profitability. In 2018, AI solutions entered the market and facilitated significant changes in three major areas—customer service, claims management and underwriting.
With regards to underwriting—analyzing risk—AI is helping in the fast and accurate processing of the huge amounts of data collected from AI devices. Unlike a human analyst, AI can easily handle massive amounts of data within seconds. With that kind of speed, insurance companies can deliver quick service to customers and also save on costs through the automation of analysis tasks.
When it comes to customer service, 68% of insurance companies are already using chatbots to improve customer experience. At the moment, chatbots are handling basic inquiries. However, industry experts expect that in the future virtual assistants will handle everything from accessing your policy information and guiding you through a case to checking for benefits.
Finally, regarding claim management, AI solutions are already handling the repetitive and tedious task of claim management. Statistics indicate that 80% of health insurance claims are flagged as problematic. AI can sort them out and only pass on the legitimate ones.
To paint a clearer picture of the importance of AI in insurance, consider the Hong Kong-Zhuhai-Macau Bridge. The bridge crosses three jurisdictions—Hong Kong, China, and Macau—which means a driver will need three separate policies.
However, a certain Chinese company has introduced an AI-based solution to solve the headache to both policyholders and insurers anytime an accident happens on this stretch. Instead of contacting all the insurance companies, the AI tech reviews the damage and gives an accurate compensation figure.
Blockchain is the technology of now, and it has played a significant role in revolutionizing Financial Technology (Fintech). While progress is still a bit slow, the insurance industry is also at the forefront in finding ways to adopt blockchain.
The biggest impact blockchain can have in the insurance industry is the tackling of fraud. For one, blockchain provides a complete record of past transactions. Second, with blockchain, anytime a new block of information is added to the database, it not only has to be verified first, one can easily track any changes made to the existing data block.
As a result, it becomes easy to pinpoint duplicate transactions or any transactions deemed suspicious. Moreover, because blockchain eliminates intermediaries and provides full transaction transparency, it is easy to monitor international claims without fear of fraud.
Finally, because of the transparent nature of blockchain technology, policyholders will find it easier to trust insurers because they are sure the insurance companies are not trying to cheat them out of their legitimate claims.
As the insurance industry continues to embrace emerging technologies, one thing is becoming clear—a large section of the industry will become automated. According to a McKinsey report, come 2030, more than 25% of full-time positions in the industry will have been consolidated or taken over by tech.
Note that even insurers that prefer to take a more conservative approach will have to automate because of competition from the new wave of insurance startups that are disrupting the industry. Even veteran tech giants such as Amazon are taking insurtech seriously. Recently, Amazon launched Amazon Protect—an insurance policy against damage of objects and theft.
The future of the insurance industry is already here. While most insurance companies have survived for years without having to deal with disruptive technology, the revolution has now begun.
The customer base has changed significantly, and it is demanding better from insurers. Within this transitionary period, existing industry leaders and upcoming insurtech startups will duke it out to determine who will emerge at the top. One thing is for sure; the customer can only benefit from this cut-throat competition.
However, even as customers experience the benefits of insurtech such as cost-friendly policies and easily accessible services, it is important to keep an eye on the trade-off—the loss of data privacy.