Like every other industry, the global insurance sector, worth over $5 trillion, has undergone an immense overhaul because of disruptive technologies in recent years. Customer expectations have changed, and the digitally savvy people who have grown up in the last couple of decades are used to personalized interactions and instant gratification.
Admittedly, the insurance industry (risk, premium, claims) has been slow to keep pace with digitization and are only slowly beginning to grasp the power of becoming more customer-centric and offering faster response times, increased transparency. Legacy players are now forced to compete with “insurtechs” who are coming up with better, innovative ways to speak to the customer and provide satisfaction at a lower cost.
According to PwC’s 2017 Global InsurTech Report, the challenges the insurance industry faces in their ability to innovate are
- Talent (87%)
- Data storage, privacy, and protection regulations (63%)
- IT security (53%)
- Digital identity authentication regulations (45%)
- New business model regulations (43%)
There is no going back to the old ways.
What’s been redefining growth for this industry is tech. So, companies must adopt emerging technologies such as AI, the blockchain, mobile technology, and analytics, which are successful enablers of better business outcomes.
In this post, let’s look at a few instances of how tech is driving the growth and evolution of the insurance sector.
Blockchain in the insurance industry
Along with cutting down operational costs and ensuring fast, reliable, and secure applications, blockchain has the potential to disrupt existing business models in several ways.
- With blockchain, the distributed ledger technology (DLT) which ensures that digital data is safe, there are fewer chances of identity theft or fraud (e.g. Everledger, BlockVerify). In the US, insurance fraud is estimated to be over $80 million and, in the UK, it is around £2.1 billion!
- This is the surest way to better customer experience, especially to deal with irritated customers expected to submit some zillion documents (say, KYC) many times. Automating processes such as validating identity, health and police records, etc. not only reduces admin costs but also improves customer engagement.
- Decentralized blockchain makes it easier to authenticate transactions, policies, and customers. Companies such as Nephila Capital and Allianz are using smart contract technology to process claims and fast. With blockchain, they can ensure underwriting and catastrophe risk trading are more efficient.
- Insurance companies are leveraging bitcoin as loyalty and reward programs. For both the providers and the customers who do not want to compromise competitiveness or privacy, respectively, such systems enabled by blockchain make it a seamless, cost-effective, and rewarding experience.
Source: Deloitte Center for Financial Services
In October 2016, Aegon, Allianz, Munich Re, Swiss Re, and Zurich launched B3i, a Blockchain Insurance Industry Initiative keen on building “trading platforms across the whole insurance value chain.”
IoT devices, sensors, and telematics have been fast gaining adoption in the insurance sector. Several data streams and sources (wearables, sensors embedded in vehicles, location-based sensors, GIS) coupled with advanced analytics can help insurers improve risk assessment, price policies based on real data in real time, and proactively encourage customers to buy policies for loss prevention.
- More usage-based insurance models for connected vehicles and precise actuarial models are expected with the huge amounts of data (or touchpoints) available thanks to today’s amazingly connected world. In the auto insurance sector, for example, the data (speed, time, braking patterns, distance) gives buyers more say in their premiums; risky driving patterns can serve as warning signs.
- Blockchain can be the “network connecting and ordering data from the multiple devices and apps involved in a multidimensional process.” (EY, 2016) It can help manage the huge volumes by ensuring P2P device communication.
- Companies such as Aviva and State Farm urge customers to invest in home sensors (others such as FitSense deal with fit tech to help insurers), incentivizing them to help prevent risk to self (e.g. elderly care) and property. For example, Neos Ventures, UK’s first connected home insurance specialist, provides preventative smart technology as part of the policy.
- Along with the real-time data and advanced digital capabilities, insurers enjoy better customer relationships and risk management, quicker processing of claims, and selling bundled products.
Automating and streamlining so many data-driven insurance-related processes such as pricing policies, underwriting, approximating required reserves, and risk profiling help providers come up with valuable, easy-to-use, and affordable products and services.
Artificial Intelligence and Automation
Automation and AI have transformed almost every sector across the world, and the insurance industry is no exception.
According to Accenture’s Technology Vision for Insurance 2017, 94% of “insurance executives agree that adopting a platform-based business model and engaging in ecosystems with digital partners are critical to their business.” In 2016, 35% of insurers reported over 15% in cost savings from automating systems and processes in the last two years.
- Automation of more complex tasks (other than compliance checks or data entry) such as property assessment and personalized consumer interactions over the years has brought frictionless experiences and cut down redundancy.
- Employing AI in the claims process has brought better quality and lesser time for handling (e.g. RightIndem, Shift Technology). AI algorithms can save millions lost to fraudulent claims by scouring data and identify errors and trends. The future is definitely touchless!
- Machine learning can be useful in evaluating risk and identifying cross-selling opportunities. ZhongAn, China’s first online-only insurance technology company, uses AI, machine learning, and big data to “simplify insurance, price risk more finely and distribute cheaply to a mass market via the internet.”
- For automated claims processing and property assessment, P&C insurance providers (e.g. AIG, USAA) are using drones for more accurate information and faster processing.
- Chatbots (e.g. Cognicor) is transforming the insurance sector by personalizing customer interactions via human-like interfaces. How many use chatbots in the insurance industry? 68% of respondents replied in the affirmative reports an Accenture survey. They settle claims— Lemonade’s AI Jim and Geico’s Kate. Next sells small business insurance and Trov sells on-demand property coverage (accidental damage, theft, loss) to individuals.
- Advanced recognition is also bringing out new business models in tech. For instance, Lapetus lets you buy a policy with a selfie!
Big Data and Predictive Analytics in insurance
Although seemingly unmanageable amounts of data are churned out every day, advanced analytics has been helping insurers manage risk, drive profitability, settle claims, and price premiums better and faster. Extracting value from data using powerful analytics and data warehousing platforms have enabled evidence-based decision making.
- According to a Willis Towers Watson survey, big data and predictive analysis will expand customer relationships, improve internal performance management, and enhance customer value proposition by about 20 to 30%.
- In the claims cycle, using exception reporting, text mining, rules, and database searches, the predictive analysis identifies fraud more effectively. Claims and fraud analytics will better insurer profitability.
- Identifying subrogation opportunities sooner using text analytics, loss expenses can be minimized, and loss recovery can be maximized.
- Across the insurance value chain, quote gathering, actuarial, claims, and underwriting benefit from web analytics and studying data to discern useful patterns.
Augmented Reality/Virtual Reality
These technologies will provide superior experiences for customers by using novel ways to talk about insurance products and services and for employee training.
- AR apps-based tutorials and games can be valuable marketing tools and can help gather customer insights and reduce the cost of training by enhancing the learning experience.
- For example, MetLife provides product info via AR videos, Allianz tells consumers about possible home accidents via AR, AXA spreads awareness about car accidents through AR apps, Zurich improves L&D for its employees through mobile apps, and some companies are using AR for claims processing (e.g. car damage assessment app).
- Insurers leverage VR technologies in various ways. Say, virtual driving tests could help insurance providers while deciding the coverage for a new client. Health insurance providers are happy with the premium savings kickback from digital consultations. Property and Casualty (P&C) insurers use simulations to train agents and underwriters.
- It is important to note that one of the fastest growing insurance is Cyber insurance; mixed reality will bring a slew of new risks (health, behavioral, privacy, and information security risks) and new growth opportunities for insurers.
(Also read - Brace yourself, the Virtual reality is coming)
For both the provider and the customer, these are exciting times.
Newer technologies—blockchain, sharing economy, IoT, cognitive computing, self-service, channel revolution, platformication—are giving rise to new use cases and business models in the insurance industry. The ensuing challenges and opportunities urge companies to innovate faster and reinvent the industry to survive in such an astonishingly digital world.