Technology has disrupted various sectors, including finance and regulations, triggering the emergence of the fintech and regtech industries. Insurance has not been an exception to this trend. Insurtech is a mix of insurance and technology and just like fintech, it aims to digitize and facilitate a lot of processes handled with traditional and established methods. Today, insurance is using many inefficient methods for assigning risks and premiums to customers. These methods lead to overpriced services for many individuals. Insurance companies, on the other hand, chose to err on the safe side and assign higher premiums to those who might be less risky. Thus, the existing model leads to more revenue, which is why it has taken so long to challenge the established insurance procedures.
Insurtech providers are using the modern technology to be more efficient and offer better services to the customers. Instead of actuarial tables, which are used to lump together different categories of customers and assign them with a certain premium, insurtech companies will be able to offer more customized approach. With the mobile devices companies are able to track more personal information of customers, like their location, spending behavior and so on. This information can be used by insurtech companies to get a more comprehensive and accurate view on customer’s riskiness.
Some of the new technologies that can be integrated to keep track of the consumer data include in-car monitoring devices. These could be traditional GPS solutions, which are able to transmit individuals location when moving with a vehicle. As cars are a big part of the insurance sector, this information could be used to get the information on how much the users spend driving. Information on speed can also be obtained. With this information, it will become possible to assess the riskiness of the customer more accurately. Wearable tracking devices are also being considered for similar purposes. Overall, monitoring consumer behavior will give the companies the ability to offer more competitive rates and improve the user experience.
Fitness apps are also targeted for acquiring custom data on individuals. This could be very important for health insurance providers as they will have direct access to information on customer’s lifestyle and habits. If someone is engaged in more active lifestyle and exercises daily, they should be offered a lower premium than those who lead a more sedentary lifestyle, all other factors held constant. There is, of course, a risk on how accurate the information acquired from this devices will be. If the insurtech industry finds a way to make this channels more reliable, they will be able to lower premiums for many customers.
Pricing is not the only aspect that will be improved by the integration of technology. Insurtech companies are also considering using Artificial Intelligence to assume some of the responsibilities of brokers and help users identify a different mix of policies to create a coverage plan. This will facilitate the process as the human mistake factor will be eliminated and speed and efficiency will be increased. In addition, modification of such programs will be easier than retraining brokers, in case something changes.
Something that current insurance companies can’t handle is quick on-demand insurance for small events. Existing procedures are so cumbersome that it is not efficient to seek the services for something that is not going to last very long. On the other hand, there is a clear need for on-demand insurance. People who borrow a friend’s car should not drive under an increased of incurring large losses. With modern technology, it will become possible to insure such activities temporarily as the process will be a lot faster and more effective.
With the distributed ledger technology, a completely new model of insurance could also emerge. Currently, insurance companies are able to make large profits because they get to keep the premiums that they do not pay out to cover losses. This is not effective for the individuals. Peer-to-peer insurance could change this scheme completely. Instead of paying one centralized organization for the insurance services, users can simply pool together their resources and then cover individual losses from these funds. In this cases, the system is not profit oriented and it could be a lot cheaper for the individuals. Insurtech companies could be a way towards the P2P insurance model.
There are some obvious advantages associated with using technologies in the insurance business. Efficiency is one of the most important ones. Current methods of risk-assessment are too general and are based on estimates that make it impossible to offer customized premiums. Insurtech targets this problem by incorporating modern technology to assess the behavior of individual customers. Furthermore, digitized processes inside the companies make the insurance procedure faster and effective, which make it possible to offer additional services like on-demand insurance.
Lower fees are directly associated with more customized risk-assessment. Nowadays, big insurance companies lump individuals together and assign them with a higher premium as it leads to larger profits and lower risk. With insurtech companies, as they will have a more accurate picture of the risks, it will be possible to lower fees for some of the users. Furthermore, automating certain processes with AI will directly reduce costs that could affect the premiums as well.
A huge part of the insurance world is fraud. This problem occurs because there is no way for insurance companies to make sure that the loss was incurred accidentally. Sometimes consumers, in order to receive reimbursement, will report false losses or will damage their property on purpose. With technologies, consumer behavior can be monitored more closely to make sure that the reported losses are genuine. Furthermore, digital signatures can be used to make sure that reported losses occurred after the insurance plan was purchased. While this does not eliminate the problem entirely, it alleviates the issue considerably compared to the currently used practices.
Insurtech is also very important for small businesses. Because the fees collected from small businesses are small compared to larger enterprises, and in most cases, risks are higher, insurance companies refuse to deal with them altogether. This limits the options of small business owners when choosing an insurance provider. Insurtech companies, which serve their clients online, have the luxury to attract a sizable base of small businesses. Economies of scale will make it possible to offer services to them. In addition, getting their insurance online quickly and easily will be a lot more convenient for small business owners, who do not have the luxury or expertise to go through long documents that they would have to fill out otherwise.
There are several reasons why insurtech might be slow to take a large share of the industry. First of all, there are many regulatory requirements that make it difficult to digitize some of the processes. Customer identification and verification are easier to do for existing companies with large databases and face-to-face interactions with the individuals. More importantly, the established insurance companies are wary of adopting technologic solutions. Tough regulatory requirements make them operate more carefully. Insurtech startups do not have enough capital to grow fast. They would still require the support of existing companies which are not easily associating themselves with the technologically more advanced alternatives.
Although the barriers slow down the popularization of insurtech startup, it is inevitable that eventually, technology will become indispensable for the insurance business. The effectiveness offered by the new solutions will be successful in attracting a user-base, and traditional companies will not be able to compete.
Just like when choosing a traditional insurance provider, it is important to consider the reputation of the company. Especially with online providers, there could be a lot of solutions making fraudulent claims or presenting their services falsely. It is important to study the background of the company, check their licenses and customer base. If a company has large institutional customers, it is likely that they are trustworthy.
Additionally, it is possible to compare prices and premiums offered by various solutions. Even with similar plans, different providers will have different fees. It is important to compare these fees to choose the least costly alternative. Although, reputation should not be compromised for low price. It is possible to higher a third-party agent, who will help find the best insurtech provider depending on specific needs.
Ease of doing business with the provider is also an important factor. User experience largely depends on how easy it is to get information from the insurer, file for claims and so on. A 24/7 online support is something to look for. Customers might have a question regarding the policies anytime, it is important that they are able to get answers easily.
Some additional factors might be considered depending on the type of the customer. If someone is looking for a family insurance, they could look at special discounts that the insurers might provide. With insurtech, there could be various new services, that are offered because of the integration of technology. It is important to look over special offers before making a final decision on which provider to choose.
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