Tech spending in the global insurance industry is estimated to be at $189 billion. The spending industry is expected to reach $205 billion by 2019. The IT spending ratio of insurance companies as a percentage of premiums has not changed to a great extent. Insurance companies currently spend about 3.8% of their direct written premium on IT. The average spending by insurance companies has comparatively reduced in the last four years. There are around 700–800 InsurTech firms globally that are addressing the requirements of the $4.5-trillion insurance industry, but the state of InsurTech is at a stage of infancy. New exciting business models to take over the insurance industry, such as microinsurance and pay-as-you-go insurance, have emerged. What will truly change the nature of the industry is the shift from complex, long-term insurance products to the fractions of insurance for a particular moment, time, and miles count. The new opportunities are tied to mobile devices and time efficiency.
Focus areas of the global insurance firms when it comes to technology
There are 10 reasons or qualities why InsurTech will gain center stage:
Insurers are creating lifestyle apps that provide additional consumer value on a continuing basis. Continuous consumer engagement will start to replace price as the key buying criterion. The result will be sticky insurance with strong brand loyalty. For example, Knip is an innovative digital insurance manager that provides users with an easy-to-understand overview & analysis of existing insurance policies, tariffs, and services in an app. Similarly, Clark is an insurance platform that provides a transparent, cheap, and comprehensive insurance cover over the app.
The insurance industry is in a phase of the digital revolution, replacing legacy systems and infrastructure to meet the demands of today’s digital consumers. Insurance companies must transform digitally at par with all the value chain partners to understand and service the customer needs. Big data analytics play a major role in getting 360-degree insights of the customer, forecasting their needs, providing educational training, and assessing their risk parameters to get the best quotes. Big data will remain to be a major force and will soon become a necessity for companies in this digital era. For example, Dynamis Software Corporation provides CDHC plan optimization tools for health insurance brokers. It offers the Dynamic Plan Designer, which allows brokers to interactively evaluate plan options with employers. Likewise, Shift Technology leverages data science to automatically detect networks of fraudsters in insurance and e-commerce. The solution is integrated into the big data platform and is provided in a SaaS model.
Smart contracts powered by blockchain could provide customers and insurers with the means to manage claims in a transparent, responsive, and irrefutable manner. Contracts can be recorded onto a blockchain and validated by the network, which will ensure that only valid claims are paid. Startups such as Everledger, Blockstream, and Tierion are working in this direction. Everledger provides an immutable ledger for diamond identification and transaction verification for various stakeholders, from insurance companies to claimants and law enforcement agencies. Everledger provides new methods of financing and insuring diamonds as well as combating fraud by providing an application for various stakeholders in the diamond pipeline.
Embroker offers small businesses the benefit of benchmarking their coverage with their peers in the industry. Furthermore, they also enable firms to ensure that their partners are also well covered. The company aims to revolutionize the way businesses buy, manage and understand insurance. The company combines the service and expertise of the best-in-class brokers with an innovative technology platform. The 100% online solution allows optimizing insurance spending with policy benchmarking tools, provides a real-time interface to track & manage claims, and has many other beneficial features.
Companies such as Peercover, insPeer, Friendsurance, Lemonade effectively use social media. Social media acts as a catalyst for efficient communication & interaction among people and is a natural ally for helping insurance companies to improve their business and connect with customers. These InsurTech firms make cost-sharing simple and hassle-free.
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InsurTech firms have identified new sources to gather customer information. Devices such as wearables, IoT, and smartphone apps enable tech firms to capture customer data. This data is expected to lead to lower premiums over the policy term to incentivize better behavior. Metromile, a startup, has created a device that captures mileage data to determine how much a person should pay for their car insurance policy. Similarly, FitSense is a data aggregation platform for wearables in the health and well-being space. Unlike others in this space, FitSense is not a distribution play. They provide insurers and consumers with new sources of data to better underwrite risk and make healthy lifestyle choices.
The ability to turn insurance on and off is expected to be widely accepted in the near future. Though the cost of microinsurance would be higher, the millennial attitude towards insurance cover is expected to drive the adoption. Microinsurance has also been well-received by the incumbents. Several major insurance organizations have formed a microinsurance consortium and microinsurance venture incubator (MVI). The group is currently evaluating opportunities to deliver risk protection to underserved markets in Latin America, Africa, and the emerging Asian market.
About 10% of insurance claims are fraudulent. Insurance companies face a tough job in identifying those fraudulent claims. Most fraud solutions on the market today are rules-based which is easy for fraudsters to manipulate and get around the rules. Predictive analysis, on the other hand, uses a combination of rules, modeling, text mining, database searches, and exception reporting to identify fraud sooner and more effectively at each stage of the claims cycle. As an example, Shift Technology leverages data science to automatically detect networks of fraudsters in insurance and e-commerce. The solution is integrated into the big data platform and is provided in a SaaS model. Likewise, Tyche’s solution enables P&C insurers in commercial and personal lines to manage disputed claims. It aggregates legal, financial, and insurance data to build predictive models of legal risk.
There are numerous companies offering solutions around vehicle telematics, environmental sensors, asset tracking, and home security. The power of data provided by IoT is exactly why insurance companies have been among the earliest adopters of this technology. With IoT, Insurers are equipped to offer relevant packages based on actual use and behavior rather than averaged statistics. Domotoz is an Internet of Things solution for the connected home. The digital platform offers proactive management for all electronic devices and not just the heating control system. Domotz offers a platform for home insurers to rate risk and manage claims.
The use of API can help insurance companies avoid the risk of falling behind. There are APIs that collect general information. In the case of bill payments, policy viewing, coverage review and discounts, there are APIs that will reduce the hassle of the development of a mobile app for the insurance firm. There are APIs that take advantage of device functions like camera, microphone, GPS services, and date/time functions. Such APIs can be useful to communicate the data to insurance companies. Insured rating, a publicly available API enables users to develop a rate plan reflecting risk levels posed by prospective customers. Quote requests can then be made via the Insured Rating API, which returns coverage and premium information. The data generated helps to manage insurance product offerings and provide accurate rate quotes matched to the determinants of risk.
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