The application of innovative technology within the insurance industry to improve efficiency, increase savings, and better meet customers’ needs.
It’s 2am. Jetlagged, but still warm with memories from your holiday, you turn the key in your front door and lug your suitcase inside. Still wearing flip flops, you’re surprised to feel cold water lapping at your feet. You hit the light switch. While you were away, a pipe burst and now your carpets are submerged in water and your furniture is ruined.
If you have home insurance, it’s likely you’ll soon be on the phone to your insurer to make a claim. (“Do you have your policy number to hand?”) However, you could still find yourself out of pocket. Most home insurance policies cover loss or damage caused by “escape of water”, but do not provide cover for “trace and access” – the cost of finding and repairing the source of the damage.
Whether it’s a renewal or a claim – interacting with your insurance company tends to leave you feeling sour.
Globally just 47% of customers have positive experiences with their insurer. (Capgemini)
Only 37% of ‘millennial’ customers have positive experiences with their insurer. (Capgemini)
Moving with the times
It seems obvious that insurance is ripe for technological revolution – its entire business model is reliant on data to understand and predict risk. Yet for half a century, the industry has remained largely unchanged. So why has it taken this long? Being a highly regulated industry might be one reason. Then again, you could argue the bigger players became complacent – having always made money this way, why change?
Insurance is an industry sadly not renowned for strong customer service or customer-centric products. Customers are no longer content with a free Parker pen with their policy. (It’s doubtful they ever were.) What customers want is speed, convenience, and products tailored to their needs.
Let’s reimagine the above scenario. It’s 2am and you’re turning the key in your front door. You’re jetlagged and a bit dehydrated – so a glass of water and then straight to bed. You turn on the tap, but the glass remains empty. Then you remember. Two days into your holiday you received a text. It was a notification from your insurance company; a smart sensor in your home detected a leak from one of your pipes. Not to worry, it automatically shut off your water supply to prevent damage. You head to bed a little thirsty and remind yourself to call a plumber when you wake.
What are the applications of InsurTech?
InsurTech is disrupting every part of the insurance value chain: distribution, customer engagement, products, pricing, underwriting, policy administration, claims, back office, data, and analytics.
Internet of Things
As more and more devices come online, insurers are using this network to become more proactive in mitigating risk and thus minimising claims. Collectively known as The Internet of Things (IoT), smart devices and sensors are already appearing in customers’ homes. As with a water pipe sensor, these devices collect, analyse, and report data. They can help identify problems and prevent them from escalating into full blown disasters. They can also help insurers gain a better understanding of a customer’s risk and enable them to provide suitable cover at an appropriate price. Devices such as Fitbits and smart watches monitor the health of people in real-time. This could lead to health insurance policies that are highly customised to each individual customer.
Artificial intelligence and machine learning
In today’s globalised world, nothing happens in isolation. Technology is the only way we can gain insight into increasingly complex risks.
When the tsunami on Japan’s east coast struck Fukushima in 2011, it caused a humanitarian crisis. It also halted production of BMWs in Munich, triggered falls in US Treasury bills, and created shortages of iPads in Australia. This event resulted in business interruption claims around the world.
InsurTech company, Adapt Ready, have created an award-winning technology that enables insurers to identify exposures that otherwise would not be possible to detect. Such insight from vast amounts of data and analysis of interconnected risks is gleaned only with artificial intelligence (AI) and machine learning.
Customer’s needs are also driving technological innovation in the industry. Say I need to borrow my friend’s car for the afternoon – I’ll need insurance cover for 4 hours. I can’t buy this type of product online. So, much to my despair, I have to phone around insurers to see if they can offer me temporary cover. In amongst the hold music, the automated voice lets me know my call is important.
It’s opportunities like this that InsurTech start-ups are capitalising on. Cuvva is an app that allows customers to buy pay-as-you-go car insurance by the hour. It’s quick, convenient, and puts customers in control. Similarly, Brolly is an app-based personal insurance assistant, powered by AI. It not only stores and organises all your insurance documents, but can also advise on whether you are under or over insured, or have any gaps in your coverage. The app will prompt you when your policies are up for renewal. Users can use the app to search the market and buy insurance too.
Is InsurTech a threat to the industry?
Technology is actively changing the insurance landscape. It will have an even greater impact as InsurTech continues to mature.
Insurance is a traditionally conservative industry with entrenched legacy systems. This is a reason many larger insurers have been slow to adopt innovative solutions. However, as more InsurTech companies appear, leveraging technology to create a strategic advantage, customer expectations will continue to shift. The industry will need to work towards becoming highly customer-focused to retain its customer base.
75% of insurance companies believe that some part of their business is at risk of disruption. (PwC)
81% of outperforming insurers have either invested in or are already working with InsurTech businesses. (IBM)
A recent finding in The Future of Commercial Insurance Broking reported that more than half of SME business customers see their broker just once a year. Yet more than 50% said they would be willing to spend more time with a trusted risk advisor to discuss their business and the risks they face. If business customers view their relationship with their broker as transactional, they’ll be more likely to purchase their insurance online. Brokers need to demonstrate the value they add in an advisory role in order to remain relevant to their customers.
Technology, in general, will also be a disruptive force for the industry. New innovations, such as driverless cars, raise the question of who will be liable for an accident should one occur? There might even be a time when accidents are eradicated due to the adoption of smart vehicles, putting an end to the motor insurance industry as we know it.
“InsurTech will both save the industry if we embrace it and call it innovation, or it will destroy the industry as we know it today… if we ignore it and treat it as disruption.”
– Jason Brown, Group Chief Risk Officer, QBE Insurance Group
As long as InsurTech continues to find better ways of doing things, it isn’t going to go away. Collaboration might not always be simple – a number of traditional insurers have 300 years under their belt, while many new InsurTech companies boast less than 300 days – but it is essential if the insurance industry is to survive.
The industry knows this, and is beginning to embrace the opportunities InsurTech provides by working closely with these innovative companies and solutions. In 2016, Accenture’s Technology Vision for Insurance revealed 44 percent of insurers across the world intended to pursue digital initiatives with start-ups from the insurance industry over the next two years.
InsurTech is the revolution insurance needs, bringing its tools, products, and customer service firmly into the 21st century. And dare I say it? With the help of InsurTech, we might all look forward to positive experiences with our insurers.