July 25, 2016
The most imminent effects of disruption will be felt in the banking sector; however, the greatest impact of disruption is likely to be felt in the insurance sector, was stated in the report of WEF in 2015.
Indeed, insurance, as an industry traditionally controlled by national corporations and the government, is one of the most exciting areas of innovation and the highest disruption potential for tech-powered startups. In 2015, more than $1.2 billion was invested in InsurTech startups – 6X the amount invested in 2010.
Since 2013, insurance tech has been actively taking off and creating its own niche in the market. In 2016, several incumbents are planning to disrupt the $4.5-trillion industry by leveraging technological capabilities. The use of disruptive technologies like big data, Internet of Things (IoT), mobile technology, AI, and blockchain are gaining momentum and InsurTech firms are looking for a scope to capitalize it.
However, despite the natural expectation that the mammoths of industry are increasingly threatened and will experience substantial hardships, it appears that corporate players are able to keep up with the pace of industry transformation. A number of largest insurers have been developing a way to collaborate efforts and learn from newcomers on the ways to bring the best of what each can offer together. Moreover, those insurers have also been supporting dedicated accelerator programs to meet the innovators and find the Uber of insurance.
It appears that insurance industry took a slightly different path from the banking industry when it came to facing competitors. A study by PwC and Startupbootcamp suggests that 75% of the surveyed insurance senior executives believed that the biggest impact on the industry would come from building products that could address the changing needs of the customer. Large insurers take a customer-centric position and believe collaboration to be an important step for the common good.
In addition, 79% of surveyed executives indicated that their companies are involved with tech startups in one or another way (engage in joint partnerships with financial technology companies – 20%, buy and sell services to financial technology companies – 16%, etc.). The result indicates that large insurers are eager to embrace healthy transformation in order to remain relevant and competitive against other corporate players and further entrants.
As Sabine VanderLinden, Managing Director at Startupbootcamp InsurTech, commented, The insurance industry is slowly waking up to the inevitability of change around it and startups are looking to facilitate, rather than hinder, change. The key will be working together.
Having the prerequisite of openness to innovation in place, insurers need to assess the areas requiring improvements and what technology can bring to existing models.
Blockchain technology, for example, could bring agility and liveliness to policy management making it possible to offer more customized solutions that are responsive to recorded changes. Blockchain-powered smart contracts combined with real-time recording can be applied to automate the claims settlement and offer automated policy renewals that are best suitable to new conditions.
Advanced wearable devices and other sensory technology of smart cities can stream meaningful data to feed the policy management system. Health-tracking devices and smartphones are now capable of monitoring and storing the physical metrics of a person, which – in the future – can be applied to the insurance apps to contribute to the risk management and to offer more customized solutions.
Artificial intelligence and tech startups working on advanced machines can aid in smart underwriting. Learning and improving, AI algorithms will be able to think like a human underwriter when performing risk assessments, constantly enriching the knowledge and efficiency. Advanced AI can also enable companies to be updated on the latest regulatory implementations and ‘advise’ insurance companies on policy development and pricing models and more.
With the increasing number of connected devices (out of 28 billion connected devices forecasted by 2021, 16 billion will be related to IoT) and improved sensory technology, insurers can be provided with data in real-time on various relevant aspects of one’s lifestyle to improve the risk assessment performed by learning machines.
With a massive and constantly growing tech startup ecosystem, the opportunities for large insurers are infinite. With a wise approach to leverage the achievements of potential competitors, insurers are bringing what is best for the customer, hence, improving the state of the industry instead of simply trying to beat the competition.