Nothing to see here. Another day, another industry disrupted by tech. No big deal. That’s a lie. It’s actually a huge deal.
Insurance is a sleeping giant, an industry that has been hibernating for decades. Not anymore. Insurance is seeing technology upsetting the status quo, bringing about a much-needed change for an industry with unlimited potential.
The reason why the InsurTech space is not getting talked about as muchand not enjoying the hype of financial technology or RegTech is because the entire premise of what insurance stands for, is kinda boring. It’s something people feel like they have to do instead of something they enjoy or choose to do. Taking that into consideration, the interaction of customers with insurance companies is one of the key areas of focus when it comes to InsurTech.
The 2018 World Insurance Report by Capgemini and Efma sheds some light into this non-existent relationship and how tech can come to the rescue.
“Customers are increasingly making their purchase decisions based on user friendliness and look and feel of the application. The technical aspects of a product are becoming less relevant.”
-Benny De Wyngaert, Managing Director,
Life Insurance & Bank Channel, AG Insurance
The report goes on to explain that “insurers may be able to beef up customer satisfaction by tapping into technologies that bolster ease of use, faster service, and personalization.”
The lack of communication between end user and product is an obvious hurdle the industry had to overcome but that wasn’t the only one. The global insurance sector was never challenged and never asked to change. People accepted what was offered to them simply because they didn’t know any better and had no alternatives to choose from.
Before addressing the ways tech is changing the insurance business, let’s investigate the state of the industry pre-tech.
An Industry Set in Its Ways
The actual product and underwriting process were too rigid. Offerings came in structured bundles that made it easy for the issuer to process and manage with no consideration for client needs. Duration was always an issue with customers always agreeing to longer contracts than what they really wanted.
From a back office perspective, algorithms that determined price points were slow, outdated and not elaborate enough. We live in an era where data and information is everything and the baseline, the foundation that the insurance industry is built on, screams for digitization.
Things are Changing
The one-size-fits-all approach is a thing of the past. Insurance is changing in a multitude of ways and the opportunity for innovation is exciting to say the least. The industry is entering uncharted territory with FinTechs having a blank canvas to create from scratch.
If you had to capture the essence of what insurance is, you would probably describe it as an analysis of data risk insights.
Artificial intelligence (AI), machine learning and blockchain are salivating reading that description. You know why? Because that’s a match made in heaven. Big data analysis is what this new breed of technology is excelling at.
Couple that with an industry that’s in need of real time, insightful analysis of data and what you have is progress and evolution. The benefits of this marriage are too many to count. Firstly, processing data and delivering the actual product will be faster and come at a lower cost. Secondly, the computational power of tech and its ability to not only gather and analyze large data sets, but also draw insightful conclusions, gives insurance companies the ability to develop deeper layers of understanding their clientele.
Behavioral analytics, lifestyle trends and telematics will become important parameters in creating a more precise and customisable product.
Underwriting models were traditionally built on protective-based models. This seems to be shifting with technology aiding in the creation of preventive and predictive models. The supply of so much more information and data collected will allow insurers to manage risk in a more informed way.
The granularity of the data will allow for better segmentation and personalization. Underwriting professionals will most likely have to evolve in their profession. They will turn into data managers assessing the statistical approach to new models armed with an arsenal of data.
The old way of getting insurance was more painful that the actual fee paid at the end of it. Long, boring and dull questionnaires supposedly designed to understand and assess risk. The future holds a more automated approach with software that can gather the necessary information without asking questions. The digital trail of information each and everyone leaves online coupled with statistics and trends about the insurance industry will allow insurers to complete a significant part of your profile.
Isn’t that the ideal scenario? Get a correctly priced insurance without the burden of questioning.
The way we buy insurance is not the only thing that’s starting to change. The actual product is going to drastically change as well. Forget the general notion of life, travel, home and car insurance. The offering will be adjusted to our millennial, digital lifestyles in a way you can’t even fathom.
You’re walking down the road on your way to the ice ring for a romantic Christmas date. Your insurance app is able to use this data to send you a real time notification offering you the chance to increase your subscription fee to cover ice-related accidents.
Insurance technology can use your phone as a sensor, as a pool of information in order to proactively craft offers that specifically reflect your needs. That’s the direction that healthcare is trending towards. A personalised approach that uses personal data to prevent risk, incentivise and propose a healthy lifestyle and construct policies that speak to each person’s profile.
Tech is again the centerpiece in all of this. Leveraging current technology and integrating insurance with fitness apps is an obvious evolution path. Imagine merging your insurance app with your activity tracker and data like heartbeat and exercise routine are taken into consideration when calculating quotes or recommendations?
The synergies between apps that cover the healthcare spectrum can bring unparalleled value to both business and customer. Insurance will take on a proactive advisory role that wants the best for its clientele instead of being reactive and centered around monetary value.
Want to take it a step further?
What if in the not so distant future, technology could support an insurance ecosystem where lines between different types of insurance were erased? Insurance companies would have such a rich data bank and accessibility into people’s habits, tendencies and lifestyles that they would be able to insure people with a single fee, taking into consideration all the necessary variables. Car, health and house insurance would all fall under one umbrella, under one single policy. Sounds both futuristic and simple, right?
Now this business model is both interesting and disruptive. P2P digital insurance pools together people that share an affinity and a similar risk profile. Risk and premiums are shared between the partakers of the pool. The interests of the people that are part of the pool are aligned, solving the main problem of traditional insurance: filing fraudulent or dishonest claims.
The P2P model is transparent as the members of the pool are liable for paying for the claims of the other people, giving them incentive to keep the risk as low as possible. Partakers are more engaged and have more control over what they want to insure and the terms of the policy. Any money left in the pool is paid back to the customer.
P2P insurance is the offspring of the digital age and as you can expect it is a more streamlined, effective and efficient way to get insured. The application process is straightforward and the easy of use is very appealing for the customer.
Smartphone apps take care of everything the customer needs. Claims function as simple as taking a picture of the damage, provide the necessary information through a simple questionnaire and upload it on the app. The payout can happen within the hour. The process described has nothing to do with the long, bureaucratic procedures of traditional insurance.