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.
Many insurtech startups are funded by established insurers, as well as venture capitalists. According to the 2019 World Insurance Report, traditional carriers and start-ups are discovering that collaboration offers a win-win path forward. More than half the insurers interviewed for the report said they are partnering with insurtech ventures for risk control and loss prevention services. Nearly half said they use insurtech to quantify risk.
Insurtech emerged around 2010 as an offshoot of a similar endeavor in banking, known as “fintech.” It is most consistently used to refer to the use of apps, wearables, big data, machine learning, and other transformative technologies to automate and improve processes across the insurance value chain – from marketing and policy origination through underwriting, services, and claims.
Consumers have come to expect seamless service, wherever and whenever. Insurers need to satisfy their customers while growing profitably and reducing operational costs. These expectations and needs now coincide with the increased availability of massive datasets and the tools to manage, navigate, and utilize them.
Technology offers the efficiencies needed to provide the service consumers demand while enabling carriers to streamline their processes and tailor and scale their product offerings. But insurtech doesn’t just mean offering products more quickly online. It means transforming the offerings and the customer experience.
Early players included price-comparison aggregators like CoverHound; peer-to-peer insurer Friendsurance; and on-demand property insurer Trov. The number of companies calling themselves insurtechs has since exploded to include a vast, evolving system of interconnected services and product offerings.
Modernizing the value chain
Some insurtech companies focus on the front-end customer experience, reducing friction in traditional insurance transactions. The time it takes to fill out an application and receive a quote is a classic example. Others seek to streamline and enhance back-end functions, such as how to assess and price risk, perform loss control, and settle claims.
The claims process is particularly well suited for technological transformation. Insurers traditionally have hired adjusters to determine the extent of their liability for a loss, damage, or injury to the claimant and come up with a settlement. Today, new approaches aid the claims process, often in combination with traditional ones.
For example, auto insurance claimants can submit photos via app immediately after an accident. Insurers also are using machine learning and numerous publicly available datasets to detect and flag potentially fraudulent claims.
As technology helps improve assessing and processing applications and claims, new insurance products are being developed and traditional products can be handled differently. One emerging approach – enabled by the intersection of telecommunications and big data known as “telematics” – is usage-based insurance (UBI) priced according to drivers’ own behavioral data. A more recent stage in UBI’s evolution is pay-as-you-drive auto insurance by the mile, with monthly billing that varies based on how much a person drives.
A similar but slow-moving trend involves the use of data from smart-home technology, such as smart water-monitoring systems that can anticipate and prevent leaks that might otherwise lead to claims. Advances in telematics and the Internet of Things (IoT) are increasing the quantity and range of the data insurers will have at their disposal.
Insurers have always recognized the importance of innovation, but – as one of the most heavily regulated and publicly scrutinized industries – they face obstacles. Many technologists driving the insurtech movement come from outside insurance. Few have navigated the legal, regulatory, and cultural minefields surrounding personal privacy and security.
Unlike some industries, in which merging speed and satisfaction has become the prime directive, insurers are required by law to protect customers from privacy breaches and bias. Perusing social media for insights to help optimize user experience or using machine learning to anticipate and address changes in users’ buying behavior may be acceptable if you’re selling cars or cosmetics – but for insurers, their clients, and regulators, it raises a host of red flags.
Willis Towers Watson, Insurtech
PwC, "InsurTech: A golden opportunity for insurers to innovate," March 2016
McKinsey & Company, "Insurtech—the threat that inspires," March 2017
CapGemini and Efma, "World insurance report 2019"
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