According to the Insurance Information Institute, “the word “insurtech” is often used to describe the use of new technology to drive cost savings and efficiencies at various points of the insurance value chain. It is also used as a synonym for startups that offer new products or deliver traditional coverage with greater speed and efficiency than traditional carriers can provide.” Insurtech is a term that emerged around 2010. The word “insurtech” is a combination of the words “Insurance” and “technology,” inspired by the term fintech.
Over the years, the term has been used by many to mean different things. Initially, it referred to some new startups trying to disrupt the industry. Today, everyone wants to call themselves an insurtech, including vendors who have been around since the eighties. Is insurtech the technology, or is a company an insurtech? Do you include the e (Insuretech) or not (insurtech)? While on the investor side, insurtech can be a catch-all for many types of companies, Aite-Novarica has done a great job of categorizing the companies that call themselves an insurtech. They break them into analytics arms dealers, beneficial bots, creative carriers, and digital distributors.
The insurance industry has long been seen as a slow-moving and conservative sector, but the rise of insurtech companies has been slowly changing this perception. These companies are leveraging technology to make the industry more accessible, efficient, and customer friendly.
No matter the name or category, there are key areas of insurance that are being impacted by “insurtech.”
Areas Impacted by Insurtechs
One area in which insurtech is making a significant impact is underwriting. Traditionally, underwriting has been a time-consuming and manual process involving a lot of paperwork and manual data entry. However, with the use of technology such as machine learning algorithms and artificial intelligence, the process of data gathering and risk evaluation can now be automated and completed much faster. This not only saves time but also leads to more accurate underwriting decisions. For example, modern underwriting systems can pull spatial reports in real-time to identify risks such as wildfire, flooding, windstorm, etc.
Big data refers to extremely large and complex data sets that can be analyzed using modern cloud-based computer systems to reveal patterns, trends, and insights. In the insurance industry, companies can use big data to analyze large amounts of information to improve the accuracy of their underwriting decisions. For example, they can use data on claims history, driving habits, and demographic information to detect fraud and better assess the risk associated with a particular customer or a segment of customers. Big data can also be used to identify and assess new and emerging risks. For example, insurance companies can apply data mining algorithms to natural disasters, crime statistics, and traffic patterns to better understand the risk of damage or loss.
Another area where insurtech is having an impact is claims management. Historically, the claims process has been slow and bureaucratic because each claim had to be manually reviewed. As a result, customers often had to wait weeks or even months to receive a settlement. Insurtech companies are changing this by providing digital solutions that allow customers to submit claims online, upload documents and photos from a smartphone, and track claims progress in real-time. This not only makes the process faster but also improves the customer experience. In addition, machine learning systems can automate the claims approval process without sacrificing fraud detection.
Insurtech is also changing the way insurance is distributed. In the past, insurance has been sold primarily through brokers and agents, but with the rise of the internet and mobile devices, customers now have access to a wider range of insurance products directly from the comfort of their own homes or, really, anywhere they happen to be. This has led to a significant increase in online insurance sales, and insurtech companies are capitalizing on this trend by providing digital platforms that make it easy for customers to compare and purchase insurance products.
One example of a new distribution model is embedded insurance. Embedded insurance refers to a type of insurance coverage that is integrated into another product or service. It is designed to provide customers with seamless access to insurance protection as part of their regular use of a product or service, without the need for them to actively purchase and manage a separate insurance policy.
For example, a manufacturer of drones may offer embedded insurance (through an industry partner) as part of its products, providing coverage for property damages or other losses that may occur as a result of using the device. Another example is a ride-hailing service that includes insurance coverage for passengers and drivers as part of the service.
Embedded insurance is seen as a way to increase the accessibility and convenience of insurance for consumers, as well as to increase customer engagement with insurance products. Additionally, it can provide new revenue streams for companies offering the product or service, as well as help to increase customer loyalty.
Although the insurtech movement as a whole is seen as a positive change for the insurance industry, there are several challenges that an insurtech company needs to overcome.
Regulation: The insurance industry is heavily regulated, and many insurtech companies face challenges in navigating the complex regulatory landscape. In some cases, these regulations can make it difficult for insurtech companies to scale their businesses and bring new products and services to market.
Trust: Trust is a critical factor in the insurance industry, and some consumers may be hesitant to purchase insurance from a new and untested insurtech company. Additionally, some consumers may be concerned about the security of their personal and financial information when using digital insurance services.
Customer Experience: While many insurtech companies tout the benefits of digital and automated insurance processes, some customers may prefer the more personal touch of a traditional insurance agent. Additionally, some customers may find the digital insurance process confusing or difficult to use.
Competition with Traditional Insurers: While many insurtech companies aim to disrupt the traditional insurance industry, they also face competition from established insurance companies that have significant resources and brand recognition. In some cases, these traditional insurers may be better equipped to meet the needs of some customers and may offer more comprehensive insurance products and services.
In conclusion, “insurtech,” despite being around for several years, is relatively new and evolving in insurance. Whatever your definition of an insurtech is, you can’t deny insurtechs are having a significant impact on the insurance industry, making it more accessible to customers, efficient, and customer-friendly. With technology advancing rapidly, we will likely see even more innovation and transformation technologies in the coming years, and it will be interesting to see how the industry continues to evolve.