Nowadays, technology is evolving every day and is coming with some amazing ground-breaking advancements that help various industries to transform and think outside the box to offer better client services. Insurance is one such industry. With innovative technologies like Artificial Intelligence(AI), Machine Learning(ML), Blockchain technology, and the Internet of Things(IoT) coming into the market, this field has started becoming better. These technologies have transformed the insurance industry and have helped insurers expand their businesses. But in spite of regulatory bodies making it easy for insurance companies to do business digitally, there are some issues that organizations face while adopting insurtech. And this is because of the unawareness of companies and clients about insurtech. Therefore, today, in this blog, we are going to learn everything about insurtech and how financial software development companies are using this technology to reshape the insurance business.
2. What Is Insurtech(Insurance Technology)?
Insurtech refers to the use of technology innovations in the insurance industry. These tech innovations are designed to squeeze out efficiency and savings from this industry. Basically, insurtech means “insurance” and “technology”. And this is completely inspired by fintech.
The main thing that is driving the investment and insurtech companies in the space of the insurance industry by venture capitalists is ripe for disruption and innovation. Insurtech is all about exploring avenues that get less incentive from the large insurance firms. Such avenues are social insurance, ultra-customized policies, and the use of new streams of data from devices that are Internet-based. In addition to this, there are some of the latest technologies like blockchain and IoT that help the insurance sector to gather better insights from clients and support various business operations.
3. Why is Insurtech Important?
There has been a long-standing need for insurance companies, whose clients comprise virtually the overall population in industrialized nations like the United States, to make significant adjustments to their business models.
So, insurers cannot afford to ignore insurtech, since it is both a strategic imperative and a need for their continued existence.
These are five reasons why incorporating insurtech is important.
3.1 Interact with Consumers in Many Ways
Not that long ago, handling financial matters required physically visiting a bank. Complete this lengthy form, register here, supply your SSN and residence, compose a cover letter to the supervisor, and sign an anti-fraud pledge.
Financial institutions didn’t conduct anything particularly unusual, like scanning your eye as an authentication measurement.
Customers can now open checking and savings accounts in moments with banks like N26, Monzo, and Revolut, and they can shop for and purchase insurance plans for their cars, homes, companies, and more in the same convenient online environment.
Customers now expect all interactions with businesses to take place digitally; insurers that can adapt by providing services via preferred channels, rather than solely in-person, will thrive.
3.2 Ways to Cut Expenses and Increase Profits
Banks like Mercury, Monzo, and N26, as well as businesses like Carvana and Amazon, have fewer physical sites than their completely localized rivals because of technological advancements.
Example: in 2021, Amazon made $469.8 billion in sales from 285 stores throughout the world, whereas Walmart generated $572.8 billion from 10,500 stores, or 36 times as many as Amazon had.
Extrapolating these figures to the insurance sector, it’s clear that upstarts with less fixed costs and a greater reliance on automation will prevail over more established firms that cling to the labor-intensive practices of yesteryear.
3.3 Get Rid of All the Waste and Fraud in the System
The purpose of the insurance sector is to relieve policyholders of hazardous responsibilities in exchange for payment. Consumers who are just interested in getting their money’s worth at the expense of their insurer are unfortunately common.
It is estimated that between 10% and 18% of all insurance premiums paid are the result of fraudulent activity.
The annual cost of insurance fraud is estimated at $80 billion, making it a major issue for the business, but manual efforts to curb the problem can only go so far. Using big data trends, Insuretch may flag potentially fraudulent claims and find gaps in coverage that insurers can fill to cut costs.
3.4 Confidentiality of Client Information
Cybercriminals mostly target financial institutions and insurance companies since that is where the money is. Moreover, insurance companies gather massive quantities of policyholder data that might be sold to bad actors or used to launch further attacks.
With technology, you can protect sensitive consumer information, identify potential entry points for hackers, and thwart their attempts to breach your network.
3.5 Boost the Quality of the Service Provided to the Client
Regular insurance processes wouldn’t be able to handle requests on such a large scale or keep clients engaged with such tailored offerings as those provided by insurtech.
Some examples of digital KYC procedures that capture more data while being less invasive include chatbots that assist policyholders locate help faster, speedier signups, assessments, and payments, and quicker processing of support tickets.
4. How Does Insurtech Work?
Insurance is known as one of the oldest financial businesses and it has the capability to help people with long experience in the market and people who have deep pockets. In traditional form, the broad actuarial tables were used to offer a risk category to the assigned policy seekers. Later the group is adjusted to gather enough people and this ensures that the policies that companies take will be profitable for them. In this approach, some people have to pay more than they should. To make this thing easier and affordable, insurtech is the best option.
Insurtech enables you to tackle data and analysis issues perfectly. With the use of inputs that come into the system from various types of devices like GPS tracking of vehicles, activity tracker on the smart devices or wristwatches, etc. Insurtech companies are creating delineated groupings of risk and this allows the products to have a competitive price.
Insurtech being a new concept comes with apps that are constantly growing. This means that insurtech is an approach that has the capability to enhance and streamline the backend processes of the system and also improve the customer experience. This helps in saving the insurance company money.
The main examples of how streamlined the insurtech backend processes are smartphone apps and chatbots. Now, insurance companies have stopped hiring customer service employees, they can use chatbots to give responses to the customers 24/7. Besides, this concept saves a lot of money for the company and customers also get the best service. In addition to this, insurtech enables the smartphone apps to improve the client experience and it also allows customers to just take a snap of their licenses and other important papers and submit it without any issues. This can save resources and time for both the insurance company and the customer.
This makes sure that insurance technology can effectively increase customer satisfaction. In addition to this, there are some key applications that show how insurtech actually works, let’s have a look at it –
4.1 Smart Contract Formulation
When it comes to Insurtech, one of the things that it has made possible is enabling insurance firms to create smart contracts. This smart contract is a blockchain-based agreement between two or more parties. Basically, smart contracts help in increasing the efficiency and speed of claims management. It also offers authentication and an easy implementation approach.
4.2 Customer Identity Verification
Insurance organizations, brokers, and reinsurers must fulfill the requirements of Know Your Customer (KYC) for all of their different counterparts. This means collecting a considerable amount of data on their customers just to verify their identity. And this customer identity verification process has become easier and faster with insurtech coming into the picture.
4.3 Claims Management
Blockchain is a technology that is highly used to create a single version of claim documents. And these documents can be monitored and evaluated by the underwriters in real-time. Basically, blockchain enables all the involved parties in the claim to handle the process all at once. Besides, it also presents various opportunities to integrate all files that are created in the claims process and then make those documents available to underwriters. And this enables the underwriters to manage all the claims and reduce the cost of administering claims.
4.4 Payment Processing
Insurtech is the innovation that is used to streamline payments of insurance claims and premiums. For instance, the auto insurance policyholders have an account from which the payment transactions happen and they are on the basis of proportion to the miles of it. Besides, the telematics system in each vehicle conveys and records the miles that it was driven and then the premium is automatically calculated.
4.5 Fraud Detection and Risk Prevention
Insurance companies come across around 10% of fraud accounts and to detect it from the very beginning, there are many insurance organizations who are paying millions of dollars to ward off insurance fraud. But with fintech coming into the picture, this issue has been resolved. It helps in detecting and eliminating errors by offering a decentralized digital depository. Basically, with the help of insurtech, checking the policyholder’s authenticity and their claims has become easy. Besides this, insurtech also helps the insurance companies to store the encrypted data and a public ledger very safely.
5. Types of Insurtech
Insurance companies that have updated themselves to use insurtech startups leverage IoT, artificial intelligence, blockchain, big data, and many more emerging technologies. These technologies help them create innovative business models and lead the insurance industry to another level.
5.1 Internet of Things (IoT)
IoT is a technology that is used by insurance companies to monitor real-time actions and gather assessments that can help in collecting information to prevent any issues or frauds. Basically, IoT helps insurers to carry forward their business operations, enables the insurers to gather & analyze data, and also enables them to interact with customers in different ways.
- Telemetry-based Claim Processing and Insurance Policies: The financial technology helps the companies to examine each and every piece of information about the user from different types of devices to regulate appropriate discounts, gather evidence, and price policies while it’s the time to find the claims. For instance, root car insurance. It provides an application that has the capability to track all the details about the customer’s driving behavior. In addition to this, health-based wearables, smart homes, and telemetry services can enable the client to save a lot of money while supporting processing claims across homeowners, health, and life insurance.
- Omnichannel Communications: This concept means interacting with various clients through any device and from any location. And because of this, mobile applications are more preferred by the customers for any type of business transaction that is also included in the insurance sector.
5.2 Artificial Intelligence and Machine Learning
Artificial intelligence (AI) is all about using algorithms and computers to perform different tasks that previously needed human intelligence like image analysis, speech recognition, and complex decision-making. And Machine Learning is a part of AI which makes computers learn from past experiences and improve their accuracy over time. Because of the excellence of these technologies, insurtech companies and startups have also started using them to generate operational efficiencies and improve customer service. The apps based on these technologies include –
- Personalized Services – With the use of client data, one can find the best suite of coverage quotes or options.
- Predictive Analytics: When it comes to insurtech apps, using algorithms to perfectly evaluate the likelihood of claim filings is a perfect choice.
- Competitive Pricing Models: Insurtech can use data from non-traditional sources to get a proper understanding of all the risk factors and this can help in staying ahead in the market.
- Chatbots: Insurance companies use natural language processing to handle customer inquiries and requests through text or messaging apps.
Blockchain is a distributed ledger technology and one of the best technologies that offer secure record-keeping. And to enhance the security and privacy of the insurance application, many insurtech companies are now using this technology. And some of the reasons are –
- Fraud Prevention: It can help in detecting fraud or malicious behavior.
- Tracking Sensitive Data: In the insurance app, to maintain the privacy of all medical records and financial transactions, using blockchain is the best choice.
- Smart Contracts: They help you to streamline the storage of encrypted personal data and its transfer.
5.4 Robotics, Drones, and More
IoT and Artificial Intelligence are the technologies that are facilitating the adoption of auto-monitoring devices like drones, robotics, and autonomous vehicles. These technologies have the capability to transform how insurers process claims, evaluate risk and underwrite policies. Let us know more about these latest technologies and inventions –
- Drones: Pilotless robotic devices have the capability to operate in various areas that are dangerous or inaccessible to humans. And this is why casualty and property insurers have started to use drones. They can help in inspecting the damage after any type of accident or a natural disaster.
- Robotics: There are programmable machines in the market that can help insurance companies to replicate human behavior and sometimes change the way an insurer assesses risks.
- Autonomous Vehicles: Nowadays, we can have cars that don’t need drivers and because of this type of invention, car insurance costs could be added to the car’s price.
6. How Insurtech is Reshaping the Insurance Industry?
Insurtech solutions enable insurers to improve at each stage of the insurance value chain. And emerging technologies also help in creating efficiencies, addressing customer demand, and reducing costs in the insurance industry. Therefore, insurance software includes some important Insurtech research and they are –
- Personalization and customized services: It helps the insurers to detect unique insurance coverage requirements and offers custom tailor customer service to every policyholder.
- Platform-based approaches to customer service: With insurtech, the customers can easily interact with their insurers through mobile apps, websites, and other digital platforms. They can purchase a policy or file a claim or settle a claim using apps.
- Underwriting support and risk analysis: With the use of predictive analytics, the insurers can accurately predict the nature of the claim, determine premiums, and estimate future losses.
- On-demand services: With insurance-based technology, the clients can purchase insurance through a mobile application or a website for short-term events like renting a car, hosting a wedding, and more.
- Claims processing: Robotic processes or AI-based tools help to streamline claims management through smart contract elements and evaluate damage after an accident.
7. Benefits of Insurtech
Some of the major benefits of insurtech are manifold for insurers and clients –
7.1 For the Insurers
- Insurtech helps in saving a lot of money and time by keeping the fraud away, especially in anti-money laundering and customer identity verification.
- It reduces errors, automates claims, and automatically enforces contracts.
- With insurtech, underwriting is simplified.
- New methods like Peer to Peer insurance have come in.
- It helps in promoting innovative new products with the help of smart contracts.
7.2 For the Consumer
- It empowers the clients by enabling them to place value on any aspect like family and friends.
- Insurtech has the capability to offer convenience and ease of access to most consumers who like to do their work using mobile phones.
- Technologies used in the insurance industry can help in increasing the customization option and increase the security level.
- Insurance companies can easily set security policies and this helps in ensuring the confidence of consumers when they are using mobile devices or any online services to transact.
As seen in this blog, insurance is not an old concept but with technologies coming in, this industry is experiencing significant disruption. And by seeing the insurance industry evolve with the help of the latest technologies, it seems that it is the one field that needs technology the most. Now you can have everything from automated underwriting and online application processes to fraud prevention and claims management systems in insurtech. It also helps in reducing costs, increasing operational efficiency, and offering better customer experiences. And this is why insurtech has been widely accepted in the industry.