The A to Z of Insurtech: An Insurers Guide to Outperform

visual of insurtech a to z

The non-stop march of digitization kicked off in the 1950s with the advent of computers. Fast forward more than 7 decades later, this digital transformation has created massive shifts and innovations that have significantly changed the way we do business, consume content, and even how we socialize with others. 

However, up until the turn of the century, most digital solution systems did not cater to the insurance niche. Insurers who tried to adapt digital solutions created for other markets often struggled to fulfill their specific needs. Insurers that attempted to build their own digital solutions from scratch often drained their resources in exchange for unsatisfactory results that do not justify the investment.

As a result, the insurance market has been slow to ride the digital transformation wave. Modern consumers, who by now are accustomed to customized products and fast service from other industries transformed by digitization, are frustrated with the outdated features and services from insurance providers stuck on legacy systems.

The birth and evolution of insurtech into its own ecosystem

visual of insurtech beginning

The word “insurtech” is derived from the combination of two words namely, insurance and technology. Insurtech is defined as using technology to solve the information and services problems that insurance companies face. It also encompasses using technology to create innovations that improve products offered by insurers.

The concept of insurtech emerged in the 2000s. In the beginning, it evolved as a subset or branch of fintech, which stands for finance technology. Around 2010, signs of insurtech breaking away from fintech emerged and insurtech began standing on its own two legs.

In the past decade of 2010-2022, insurtech startups began to proliferate. According to a Statista report, 293 new insurtech companies were founded in Europe alone during this period, with DataIntello reporting the presence and growth of the insurtech market in North America, Asia Pacific, Latin America and Middle East & Africa (MEA).

The early versions of insurtech mostly focused on reducing administrative costs and providing faster and more streamlined customer-centered services. Now it has expanded to other areas like blockchain and cybersecurity, creating its own ecosystem within a very profitable niche.

visual of digital transformation

The surge of investment in insurtech companies and startups show how much potential and growth lies in insurtech. According to Mckinsey Panorama Insurtech Database, insurance technology companies worldwide amassed investments totaling $140 million in 2011. 

Just a mere four years later in 2015, this figure reached $2.75 billion. This figure has continued to increase exponentially year by year, reaching $10.5 billion in investments for global insurtech start-ups in just the first three quarters of 2021, as reported by Reuters.

The insurtech ecosystem and how it’s disrupting the insurance industry

The surge of investment into insurtech has seen it grow at such a rapid pace, that it has disrupted and changed the landscape of what insurers are able to offer customers. Early adopters of insurtech are gaining a competitive advantage by being able to tackle the ever-changing customer needs that traditional insurers neglect. 

Let’s take a look at how different technologies within insurtech are creating disruptive innovations and changing the game for insurers. 

visual of insurtech ecosystem

Cloud computing
Cloud computing has helped insurtechs become more agile and responsive to changes in the marketplace while also reducing the cost of data storage.

Commercial property insurance data can now be stored in databases, which are located at cloud service providers, instead of local servers. This reduces dependency on physical space, power supplies, cooling systems, security personnel and other resources required for managing physical security infrastructure. Cloud-based databases can also reduce operational costs by providing direct access to economies of scale.

Without needing to invest in data storage, insurers can focus their time, energy, and resources into business growth and deliver greater value to their consumers. 

Mobile apps
Gone are the days when consumers need to sign stacks of paperwork that require an agent to explain the policies. Mobile app central platforms now help insurers pivot away from hard copy documents that lead to laborious manual work and processing. 

Furthermore, mobile apps make it easier for customers to browse the policies and products available at their fingertips, opening for insurers a myriad of new ways to interact with consumers. 

Microinsurance is one of the innovations that have been made possible with mobile apps. Through an app, consumers can browse products to sign up for policies or adjust their policies within minutes. This rapidly reduces the time it takes to close a sale because it cuts out the need to arrange for a meeting with an insurance broker. 

We have seen just how powerful microinsurance through mobile apps has been during the pandemic. Consumers have been able to sign up for coverage specific to COVID-19 without having to pay massive premiums for an entirely new health plan. 

Beyond health plans, we’ve also seen how it improves travel insurance offers and add-ons during the pandemic when traveling became unpredictable due to changing lockdowns and border control. 

Mobile apps can also make submitting claims a much easier and hassle-free process. For example, instead of waiting for someone to come and assess a car’s damage, a consumer can immediately submit photos of the damage through an app to expedite the process. 

Big data and the IoT
By utilizing big data the Internet of Things (IoT), insurers can help consumers get more personalized protection with lower premiums. 

The two primary sources that insurers can mine for big data are social media and IoT such as drones, wearables, GPS trackers in vehicles, and smartphones. Being able to access this stream of data impacts the insurance industry in two key ways.

The first is that they can get personalized data for each customer instead of relying on statistical bell curves. This can help insurers give more relevant and timely offers to their customers. 

The second impact is on the consumer-end. Consumers can also enjoy lower premiums because big data mined from social media and IoT provide insurers with the data that allow them to evolve from risk protection towards risk prediction and prevention. 

When insurers have better models of risk prediction, and can thus create behavioral incentives within their policies, consumers with lowered risks can enjoy lower premiums and rewards. 

For example, health wearables that can connect to insurance mobile apps can encourage consumers to achieve certain health goals in order to enjoy rewards or lower premiums. This also adds on an element of gamification, which revolutionizes how consumers interact with their insurance on a daily basis. 

Artificial Intelligence
Tying in closely with big data and IoT is artificial intelligence (AI). AI plays a pivotal role in crunching big data to provide insurers with customised insights and trends that can help them identify new opportunities. 

AI algorithms and deep neural networks as well as data analytics work together to create the perfect pricing and underwriting experience for customers. They can improve customer experience, productivity, and efficiency by reducing time-to-market and better risk assessment capabilities. AI also works to increase product offerings with personalized features that match customer needs.

AI is also helping Insurtech companies improve customer identity verification and fraud detection. This can lead to huge savings for insurance companies. The Coalition Against Insurance Fraud estimates that in the United States alone, insurers are losing over $80 billion a year to fraudulent insurance claims. 

Blockchain
Data security is a key issue for both insurers and consumers. Blockchain is a decentralized database that can be used to store information, so it is more secure than traditional databases. It offers high-security in comparison to traditional databases by distancing data from the internet, preventing hacking with its public ledger, and storing information with no central point of failure.

Insurtech also leverages blockchain in combination with AI to identify and stop suspicious transactions effectively, making it an effective fraud prevention and anti-money laundering tool. 

Finally, as a decentralized database, blockchain allows transactions without the need of a central authority or third party, making it more transparent and reliable for insurers that want to achieve agility for competitive advantage.

Is insurtech a friend or foe?

Unfortunately, common myths surrounding insurtech have made many insurers feel that insurtech is only accessible to the “big guys”. But the truth is that insurtech is accessible to everyone in the market. 

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More importantly, insurtech is more necessary than you may possibly imagine. Like any other disruptive technology, insurtech is a threat to legacy systems. So it’s not surprising that it has the potential to bring down even industry giants that refuse to adapt, just like how disruptive technology like AirBnB was able to topple leading hotel conglomerates that have dominated the industry for decades.

The good news is that companies that are ready to embrace insurtech will be able to rapidly improve their products and services to make their consumers happier while fueling business growth. So rather than feeling threatened by insurtech, it’s time to make insurtech your friend. And the sooner you do, the faster you will set yourself up to outperform in the market.

About Cloud Insurance

Cloud Insurance is a seamless SaaS solution made by insurance experts for insurers since 2016. We feature all the aspects of the daily work of insurance providers, and help to reduce time on managing policies, claims, financials, and reports through APIs, AI, and rule-based technology. Learn more about us here>>.

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