Insurance and technology have joined hands. The result: Insurtech. Read on to know of the coming boom:
The insurance industry is a major pillar of the global financial system. Reports from Statista have found that the total market cap for the global insurance industry is set to touch about $6.4 trillion by 2025, growing at an annualised rate of 6%. Accenture estimates the same number to be around $7.5 trillion; Juniper Research, $6.1 trillion by 2023.
In spite of the complications to global businesses brought about by the pandemic, the insurance industry has continued to maintain its solidity, driven by two major factors.
Insurance + Technology
Primarily, increased sectoral competition-driven primarily by a decisive pivot towards opening up the market to a variety of players. This competition has triggered not only several complex business challenges but has also forced innovation into a usually rigid and monolithic industry. This innovation has been driven by a wave of digital transformation to the industry – and is perhaps reflected by none better than the steadily blooming insurtech sector.
In fact, on the disruption engendered by insurtech, PriceWaterHouseCooperswrites, “insurance companies are very much aware of the FinTech revolution: 74% of respondents see FinTech innovations as a challenge for their industry.
There is a good reason to believe that insurance is indeed heading down the path of disruptive innovation, whether it is the effect of an external factor, such as the rise of the sharing economy, or the ability to improve operations using artificial intelligence.”
The term insurtech is essentially a blanket term used to refer to the digital innovation brought into the insurance sector, such as through the use of apps in smartphones, IoT and the blockchain. Much like banking, the insurance sector too saw the transition to digitisation considerably slower than others, owing in part to the convoluted bureaucratic procedures surrounding the sectors.
Much like most of the digital revolution, data will be the primary driving force behind the evolution of insurtech. The first step in this regard, according to Italian software firm Doxee, “means (…) starting from the digitization and dematerialization of all documents concerning the relationships between companies and clients.”
- Document dematerialisation: The mass conversion of physical documentation to digital is crucial to these sectors, especially in dealing with compilation risks and risks of loss. Dematerialisation has allowed firms to ‘really’ get to know their consumers – clustering them based on specific characteristics to personalise communications, increase retention rates and lower churn rates, crucial to insurance companies today in a hyper-competitive sector.
“But an efficient and personalized dialog is also the best way to put on track effective upselling or cross-selling actions: without targeting the masses, but designing them based on the needs of the recipient”, Doxee writes.
- A sharing economy ecosystem: “Insurance products all focused on people’s needs, intelligent, activated instantly, with reduced bureaucracy, and with an increasingly short-term view.
There are already many start-ups who are focusing exclusively on these areas.”
Smallticket is a leading Mobility-as-a-Service (MaaS) player in the insurtech market in Korea. They were the first to launch on-demand mobility insurance, providing essential coverage to workers in the gig economy – such as food delivery riders.
Micro-Insurance: One of the most vigorous trends in startups in insurtech, this aims to stipulate time-based policies that cover entirely based on usage, such as in the automotive sector, based on miles.
- IoT and AI: IoT-based insurtechstartups are concerned with “the automotive sector, the housing sector with smart buildings, the so-called factories 4.0, but also health, with everything related to wearable devices.”
Troves of IoT data is set to optimise almost all business processes and costs, offering targeted, flexible and personalised insurance policies, proving beneficial to both the holder and the firm.
And, this is where AI will come in – whether it be in the replacement of traditional brokers or providing 24/7 customer service through chatbots etc.
- Blockchain: The vast potential of blockchain technologies are set to take the insurtech world by storm, currently gaining traction around the theme of smart contracts – bypassing the need for intermediaries to be validated and implemented.
IBM Blockchain, for example, is aiding the insurance sector radically transforming operations by enabling not only faster verifiable data exchanges, but also increased visibility and trust.
IBM writes: “One example of transformation is openIDL, a network built on the IBM Blockchain Platform with the American Association of Insurance Services (AAIS). AAIS is automating insurance regulatory reporting and streamlining compliance.”requirements, and that’s improving efficiency and accuracy for both insurers and state insurance departments.