InsurTech stands for insurance technology, but this term can still be considered pretty abstract. After all, how can cutting edge technology work in the insurance industry? As with all innovative ideas, there are many ways to reach the goal. Read on to learn all you need to know about InsurTech industry: its history, how it’s used to make life easier and accelerate business, and what its future is going to look like!
What exactly is the InsurTech industry?
What is InsurTech? InsurTech is an umbrella term for all technological solutions that enable insurers to implement new services or save costs while streamlining the existing ones. The concept is incredibly smart. In fact, it has emerged as a natural answer to the needs of customers demanding new, simpler ways of dealing with insurance companies.
According to Brad Rutta, former Chief Digital Transformation Officer with Generali Global Assistance in the US, InsurTech appeared after banks started offering their online and app based services and the customers loved them for their simplicity and usability. It was only a matter of time before other financial institutions went in their footsteps. In fact, when it finally happened, it hit the bull’s eye. In 2016—2018, InsurTech investments reached $11.2 billion. It’s twice the amount for 2010—2015 and we can safely assume that the trend is only going to accelerate.
InsurTech can be considered a sub-type of FinTech, as it’s hard to define it in a very specific way and it refers to a variety of technologies. Generally speaking, it can be divided into 3 main categories:
- usage-based insurance
- health insurance
- peer-to-peer insurance
Each of them focuses on different services, but they all share one common aspect: they use digitalization to provide customers with a better experience.
While traditional car insurance has a fixed price (depending on a number of static conditions), the InsurTech alternative allows drivers to save money by charging them only for how much they actually use their cars. Moreover, it encourages driving less and in a safer manner through gamification.
Health insurance with InsurTech
InsurTech industry companies use big data to perform more accurate calculations and offer customers traditional health insurance at a more affordable price. There is more to it, though. Thanks to InsurTech apps it’s easier to purchase insurance and access information such as the nearest doctor’s address or even book a visit or contact the help desk with a built-in chat.
Social insurance is a concept based on the collaborative consumption model. It assumes that it may be more cost-effective to gather in a group and collect a pool fund that would cover medical bills of the members, either directly or via a selected insurer. How it works is brilliantly simple: smaller sums needed to pay for medical bills come directly from the money collected in a group fund of the social network. If the bill is too high, it’s covered by insurance. Now, however, technology can make insurances more accessible, customer-friendly and effective in terms of administration.
Technologies used in InsurTech
Having established how customers can benefit from InsurTech (mainly by saving money and having an easier access to services), let’s focus on the technical aspect. After all, we’re talking about insurance technology here and the companies try their best to use whatever the scientists come up with to up their game.
AI & Machine Learning
Artificial intelligence can be helpful in a number of ways. Basically, it allows for transferring tasks which would traditionally require a human to be performed to computers. In a nutshell, AI lets companies do more with less staff. When implemented correctly, AI-based speech recognition can make customer service more effective by collecting basic information from the customers before transferring them to human operators. AI-assisted image analysis is not only fast, but also more and more accurate, so verification of documents can be automatic and instant. Machine learning, which is a sub-type of AI, is present on all layers of the InsurTech technological stack and constantly analyses all sorts of data. It lets the IT system learn from its experiences and include input from the outside world. As a result, the AI becomes better at drawing accurate conclusions and predicting possible results of the events.
Most common uses of AI and Machine Learning in InsurTech are:
- Personalised services that are more appropriate for the needs of individual customers.
- Precise price adjustments possible thanks to the holistic understanding of data and massive computing power.
- Data analytics for more accurate claims predictions and business planning.
- Chatbots that can use natural language and manage more customer inquiries in less time, than human staff could ever do.
Internet of Things
Almost every device we use daily can be connected to the Internet. Sometimes even refrigerators are online, not to mention smartphones or machines in factories. With such access, insurers can keep track of how these devices are used and interact with customers to provide instant help. It means two basic InsurTech uses of IoT:
- Smart communication. As everybody nowadays has a smartphone that is always online, insurers can not only offer traditional phone-based communication, but also a variety of services that can be used or purchased in-app. A help desk chat is the most popular one, followed by access to all information about the bought insurance policy from all around the globe.
- Telemetry. It enables massive data collection, quick claim processing and determining appropriate discounts based on the customer’s behaviour. The Usage Based Insurance model is the best example of what’s possible thanks to IoT and it’s not limited to car insurance. More and more industries start using IoT telemetry. The most notable is agriculture, where the famous tractor manufacturer John Deere monitors how their machines are used to provide better technical service. Obviously, they also make more money by somewhat monopolising the repairs, which is another, controversial topic.
Robotics role in the InsurTech industry
While it may be surprising, InsurTech employs robotics for a number of reasons. Most important ones are assessing damages and minimising risks. What autonomous machines are going to become common on accident sites and in our cities in the next few years?
- Drones are not only fun toys and tools popular among photographers, because they allow for cool shots. Thanks to their mobility, they can observe accident sites from above and inspect places that are difficult to access, such as sites of natural disasters (not to mention that they can help find casualties). Chubb, a large US insurer, is already deploying drones to quickly and accurately assess damages caused by hurricanes and wildfires across the country.
- Autonomous vehicles are meant to minimise the number of road accidents. Major car manufacturers, such as Ford and Tesla are working on this technology right now. Since such cars need to be connected to the IoT at all times, they send telemetry data and their insurance cost can be built in the price of the automobiles themselves. Volvo had already claimed that they were going to take full liability for any damage caused by their autonomous vehicles. It lets us believe that InsurTech is going to affect car prices too.
Insurers need to deal with huge amounts of sensitive personal information, so security is crucial both for them and their customers. In order to keep their systems as tight as possible and prevent data leaks, many InsurTech companies decide to use blockchain technology. Actually, this relatively new concept is virtually revolutionizing all sectors, not just insurances. It works by distributing data into blocks that form chains, similar to the DNA code. In order to read the information, the whole chain is needed, but blocks are never stored in the same place and get distributed over a dispersed network instead. Since there is no centralized data storage, it cannot be hacked and without inside help, criminals cannot access anything valuable.
Blockchain is also vital for smart contracts. Simplifying, they are a secure way of verifying information and identities, both of which make business so much easier. Imagine switching an insurance company. Normally, you would have to sign a contract personally and deliver it to the company’s office, for example by post. With security provided by blockchain, you can do it within an app in a blink of an eye. From the industry perspective, the biggest benefit is probably rebuilding trust – after all, it’s the cornerstone of the whole sector.
How InsurTech industry is changing the world
By addressing the customer needs (including those they didn’t even know existed just a few years back) and reducing operating costs, InsurTech revolutionizes the whole insurance industry. Let’s sum up the key applications of the new technologies we’ve discussed above:
- Better customer service, thanks to quicker data analysis, new communication channels and AI that unburdens the hardworking staff of the insurance companies.
- On-demand services, which are not just VOD. Smart insurers let you buy specific products as you need them. Going for a skiing trip? You can just click a button in your app to make sure you’re covered in case of an accident.
- Predictive analytics assisted with machine learning lets the companies assess the number of claims in a more and more accurate way. They can polish their operating models and offer better prices, while increasing the incomes as a result.
- Improved security, which is so important in times of constant data flow.
InsurTech is also influencing the IT industry, as many in-house software development departments don’t specialize in the technologies needed in this sector yet. Nowadays It’s quite common for insurers and startups to hire specialized teams from independent software houses, such as Code & Pepper.