1. The insurance industry is changing to “digital-first” business models that have the potential to create new revenue valued at billions of dollars.
2. Insurers are using the Internet of Things, sophisticated analytics, and machine learning to create increasingly detailed individual risk profiles as they emphasize individualized rates and usage-based coverage.
3. Collaboration between companies offering traditional insurance and those in the insurtech sector will result in new business models and income streams, increased profitability, and decreased operating costs.
A “digital first” urgency is sweeping the landscape, driven by a new generation of customers, data, automation, and artificial intelligence. The USD 5000 Billion AKA 5 Trillion global insurance market is in the middle of a game-changing policy shift that will redefine “business as usual” (AI).
Let’s examine the major trends influencing the insurance sector and how information devices bring permanent change.
Due to the digital economy, usage-based, on-demand, and “all-in-one” insurance lifestyle solutions will become increasingly relevant. Instead of the existing one-size-fits-all offerings, customers will desire customized insurance coverage. Today, distribution expenses eat up more than 80% of the premiums that insurers earn. The excessive reliance on human labor exhibited by intermediaries in the value chain of insurance will be rendered obsolete by digital models. In the long run, peer-to-peer insurance, microinsurance, and flexible coverage alternatives will all be practical choices. Direct risk capital funding from reinsurers will go to digital brands, and regulatory regimes will allow for shorter value chains.
Life standardizing applications will reinvent the interactions between insurers and insureds. Application Programming Interfaces (APIs), which combine data from many sources, will make it possible to develop insights-driven services. A more profound comprehension of consumer behavior will result in more precise risk assessments, individualized premiums, and value on a long-term basis for improved customer satisfaction and brand loyalty, as well as fewer fraudulent claims.
Due to the development of AI algorithms, improved data processing capabilities, and novel data channels, robotic processes (RPA) and AI automation will take center stage in the insurance industry. For instance, Lemonade, an InsurTech startup, uses AI and behavioral economics as the foundation of its business strategy. While AI does away with brokers and paperwork, its behavioral economics skills also cut fraud, saving time, money, and effort. In addition, Tyche, a different InsurTech company, has implemented an AI-infused claim likelihood model in underwriting to assess the risks and increase profitability.
Bots will spread throughout front and back offices to automate claims processing and policy servicing for quicker and more individualized client care. For instance, the virtual assistant of well-known auto insurance in the US responds to consumer questions about plans and payments. Jim, a claims bot from Lemonade, evaluates and settles property claims in only three seconds. SPIXII, an automated insurance agent, communicates with clients using a mobile phone app and other messaging services to assist in selecting the best plans. Business outcomes in consumer experience, cost minimization, operational efficiency, market competitiveness, and emerging business models will all be significantly impacted and improved by AI and automation.
With new tech-enabled data sources like The Internet of Things, smartphone InsurTech apps, and wearables, premiums will become more tailored. Property and Casualty (P&C) insurers could extract reliable real-time data on the loss risk of specific customers since the market for connected devices is expected to increase rapidly over the next five years. They will be able to respond proactively with prompt treatments that are highly customized. The collaboration between a European insurance firm and Panasonic is a prime example. The sensors from Panasonic offer mobile notifications to the insurer and its clients for efficient and well-informed issue mitigation.
As drone and image technology advances, insurance companies can get high-definition photographs for remote and precise property evaluations and analysis. For example, drones were used by a few top car insurers in the United States to evaluate Hurricane Harvey’s losses. Using drones, an Australian insurance business could resolve 90% of significant loss claims in just 90 days. Insights will also be developed through data set linkages to refine personal risk profiles and shield insurers from new risk exposures. A U.K.-based insurance firm, for instance, uses predictive analytics to analyze complicated consumer behavior, improve price accuracy, and drastically cut down decision-making time.
An American insurer uses telemetry technology to provide drivers immediate feedback to promote safe driving. Customers have saved up to 40% on insurance premiums because of this.
Dynamically segmenting users and their demands, modeling behaviors and identifying exceptions, adjusting policy rates, enhancing corporate strategies, and seeing new growth prospects are all possible with advanced analytics. In addition, automation, artificial intelligence, and machine learning may further incorporate scale and turn insurers into proactive risk managers.
Innovate companies have seen substantial expansion in the car, homeownership, and cyber insurance sectors. Rapid growth will encourage conventional insurers to invest in technology or collaborate with insurtech firms. Such collaboration will become essential given millennials’ rising desire for cutting-edge goods and services. Overall, it will be a win-win situation wherein InsurTech startups will have access to larger client bases, finance, and industry experience. Conventional insurers would gain quicker outcomes in building a tech culture. Newer models and income sources will emerge; as a result, resulting in increased profitability and decreased operating expenses. Value-added services will improve customer experiences.
Various insurance operations must handle large amounts of client data in live time, which necessitates simple and secure data transmission across businesses and their many stakeholders. Blockchain technology offers the benefit of safe data management across several interfaces and stakeholders without integrity loss. In addition, the system delivers lower operating expenses across the board, from identity and access management and underwriting through claims processing, fraud monitoring, and consistent data availability. Smart contracts and Decentralized Autonomous Organizations (DAOs) are two further advantages that blockchain technology may bring to public policy management.
It’s interesting to note that more than 38 insurers and reinsurance firms have joined a project called the B3i to investigate blockchain possibilities in the insurance industry. A blockchain-based insurance system is anticipated to launch its beta version in 2018. According to the aforementioned developments, the insurance sector has the potential to gain new value worth billions of dollars. The secret is knowing when and how to use this potential by utilizing both old and modern technology.
