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The insurance industry is often regarded as among the slowest in finance to adopt change, owing to its reliance on traditional models that have existed for centuries and regulatory complications.
Even as other types of fintech (financial technology) proliferated in the 2010s, insurance was lagging. But as innovations emerged and demand for digital services skyrocketed, insurtech followed.
After initially being used to automate back-end processes, inurtech has since expanded to include a host of innovations such as auto-insurance, AI-driven underwriting, and blockchain-based smart contracts.
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Insurtech – short for insurance technology – is the use of technological innovations in the insurance sector.
These innovations include such things as artificial intelligence, big data, blockchain and internet-of-things, which can be leveraged to reduce costs and inefficiencies, as well as enhancing the customer experience.
It’s rise and adoption by the industry is reshaping the traditional and notoriously change-averse sector, allowing for services such as personalized policies, faster claim processing, and improved risk assessment.
There are several types and models for insurtech, including:
This allows customers to purchase insurance coverage instantly via a mobile app or platform, for a specific duration (usually, short-term), such as travel, gadget, and other events-based policies.
These market and sell a range of insurance products online. They typically include features that simplify the process of comparing and selecting insurance products as well as an enhanced customer experience through customizable products.
This model sees multiple groups of individuals pooling their premiums together to insure against a shared risk, independent of an insurance company.
In some models, unused claims can be returned to policyholders or donated to charity – in a manner very similar to Islamic insurance, Takaful.
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This model uses data gathered through a customer’s devices, including one’s phone or car (telematic data) to adjust prices and premiums based on the usage and habits of the customer.
This type of insurance is particularly common in the auto insurance sector, where car sensory data can accurately gauge the safety of the driver and thereby adjust the premium.
These models integrate insurance offerings to online product purchases, such as lumping in travel insurance with airline ticket purchases.
This model leverages blockchain technology for timely, accurate, transparent, and automatic execution of the terms of an insurance policy. Through the use of smart contracts, processing and paying out claims are automated when certain conditions are met.
Insurtech companies have been increasingly relying on AI and machine learning on a host of services, including making the underwriting process more efficient, producing customized policies, and automating the process of handling claims.
They’ve also been using it in actuarial processes, predictive analytics, better pricing, and enhancing the customer experience through chatbots.
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Insurtech has many advantages over traditional insurance, including:
- Enhanced experience: The primary advantage of insurtech is that it is tech-driven, which by default, makes all processes in insurance much faster and more efficient, whether that’s simple data gathering, processing claims, or customer service.
- Better and fairer pricing: By accessing larger data pools, automated and AI services can better and more accurately price policies, and potentially lower premiums for consumers.
- Personalized service: Better tools and enhanced data collection have allowed insurtech firms to provide customized and personalized policies to consumers in a way that would have been largely difficult for traditional insurance providers.
As an emerging industry, there will undoubtedly be growing pains, including:
- Regulatory compliance: This is unsurprising, as most regulations governing the insurance industry has been built on traditional insurance.
Meeting strict compliance measures may prove challenging for some insurtech models and services compared with traditional insurance.
- Privacy and data security: As noted above, many insurtech services and models rely heavily on data – often, personal customer data – which leaves companies at risk from cyber attacks. How companies store and use private data is also a concern.
Disclamer:
This post is for educational purposes only, and the Firm does not directly or indirectly provide these services.
