Key Takeaways
- InsurTech is here to change how we distribute and sell insurance to customers. products, and using deep tech to price and underwrite policies.
- It is the future of the insurance industry because it is going to make coverage more accessible, lower the costs for policyholders and expedite the insurance issuance process.
- With better insight into customer data and more online security, InsurTech is going to change the way the insurance industry is operating.
We have seen technology change almost everything in our lives from the way we interact with each other to how we do business. Ground-breaking technologies continue to transform several industries around the world, especially InsurTech.
The traditional insurance business model has to adapt to both internal and external challenges. This isn’t just a digital shift but it changes the way the industry has functioned. The pandemic has accelerated the process.
An amalgamation of Insurance and technology, InsurTech is working towards enhancing the insurance industry as a whole. Today, insurance companies are leveraging blockchain technology, Artificial Intelligence (AI), big data, smart contracts and more to change the way they do business.
Insurance distribution
The disruption of the finance industry has created the right foundations for the insurance industry to flourish. For many years now, insurance buying has been considered to be a tedious process and long drawn tasks and piles of paperwork.
While insurance does require the human touch, there is scope for improvement in the process.
In the coming years, we are going to witness a massive change in how insurance will be distributed. The top seven transformations happening right now in the insurance industry, thanks to InsurTech, are:
1. Digital Shift
Technology is now the most important factor of change in nearly every industry around the world. It is the future of the insurance industry as well because with its presence, buying insurance will be much easier and quicker. According to a Deloitte report, 33 per cent of the volume will come from brand new propositions.
[bctt tweet=\”Essentially insurance is nothing but a contract between a company and an individual.\”]
Cutting edge technology like blockchain, artificial intelligence, big data is the future of insurance technology. It is important and necessary to acknowledge these technological advancements and deploy them for the right purposes, and not get left behind. Digital transformations can be hard but there are tools and platforms that can simplify this journey.
2. Everyone can distribute insurance
For many decades now, selling insurance has been a long and tedious process. With InsurTechs, we are now bound to see a major shift in this aspect. As customer concerns and behaviours change, the way in which insurers traditionally distribute their product is changing as well, and we are seeing more instances of insurance being “embedded” into the purchase journey for the underlying asset(like jewellery protection, mobile phone protection, etc).
Digitisation is key in reinventing this and transforming the distribution of insurance.
3. Custom plans for customers
The future of insurance is personalised intervention. At the moment, insurance products are priced based on a few key variables, known as pricing variables. For motor, this is only the make-model of the car and the RTO it is registered with. For health, it is simply age and Pincode of residence. With the help of data analytics, insurers will focus on one-on-one personalisation in terms of risk analysis, using alternative data, providing modular options etc. to come up with customised insurance plans for clients.
Personalisation is extremely important for getting new customers, and also helps insurers account for the level of risk in detail. Once the insurer has identified the customer’s life stage, they can provide value-added solutions to meet their needs.
4. Safer ways to purchase insurance online
In the coming years, it is going to be easier and safer to purchase insurance online. The use of blockchain technology will provide better security, privacy and transparency for insurance data. Blockchain information is nearly impossible to replicate and is practically incorruptible.
With NPCI, RBI and the government coming up with more ways to implement affordable and scalable online transactions(UPI, e-RUPI, etc), the main “trust & safety” concern that a majority of India (outside urban areas especially) has with online payments can be removed, increasing online transactions and hence insurance penetration.
InsurTech has also made advancements in the detection of fraud through the use of AI algorithms. By digitizing and capturing a lot of information about transactions and claims(and e-KYC), it is possible to teach algorithms to flag potential fraud attempts for humans to evaluate, thereby improving insurers’ fraud detection capabilities. For certain products, which are cross border, blockchain is also seeing a lot of use, as it creates decentralized repositories for customer data which are secure and incorruptible.
5. Better insights into data
There are six key technological spaces to watch that will impact the future of insurance: AI and Machine Learning (proactive risk prevention, smarter claims assessment and fraud detection), Data Analytics (personalisation, better sales and operational efficiency), Cloud (efficient variable cost model, shorter time to market), Open API (partnerships, new propositions), Blockchain (increased data sharing, increased collaboration), Internet-of-Things (ecosystems integration, data and consumer behaviour insights).
By collecting data on customer behaviour during the purchase and claim journeys, insurers can gain insights to optimize both processes and insurance products themselves. Optimizing processes is a key component of digitization, as one of the biggest reasons consumers are averse to insurance is that they do not like the difficulties experienced while filing claims, or getting unbiased advice.
6. Easier backend management
Consumers can switch insurers upon renewal(known in the industry as rollover business) it is important for insurance companies to talk to each other to share data they might have on a particular asset. This is helpful to understand the risk. For example, every time you switch insurers on your motor vehicle policy, your new insurer and current insurer talk to each other to verify the No-Claim Bonus(NCB) on your policy. This is still done manually by most insurers in India.
With the use of blockchain technology, InsurTech will lead to increased data sharing between companies, which in turn will lead to increased collaboration such as sharing of fraudulent risks on a shared database. The blockchain (using selective permissions) can ensure that there is no need for “trust” and only relevant and accurate information is shared, thus removing avenues for exploitation of customer data. InsurTechs are now collaborating with digital platforms and traditional insurance companies to create more value-added solutions.
7. Complete ecosystem integration
Insurers today need to move towards an ecosystem business model. In a traditional insurance business model, insurers create and sell policies on an end-to-end basis. In an ecosystem model, insurers use digital platforms that involve third-party products and solutions while cultivating a symbiotic relationship with segment focused distribution partners.
Here, data is key. Integrating data with others in the ecosystem will lead to more customer integrated solutions, better data insights and enhanced analytics. The value in such collaboration will show up in better risk selection and underwriting, better pricing of policies, reduced claims cost, and new sources of revenue.
Embracing these ecosystems is key to survival in the digital economy. Customers and clients will choose insurance providers who understand their needs, provide the experience, product and services they want.
Insurance is no longer an old-school industry. It is going through rapid transformations. Lower costs and better customer experiences are only some of the benefits of InsurTech that the industry will receive in 2021 and beyond.
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