August 4, 2016
The insurance industry is one of the most exciting areas of innovation with the highest disruption potential for tech-powered startups. In 2015, more than $1.2 billion was invested in InsurTech startups – 6 times the amount invested in 2010. According to a 2015 report from WEF, 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.
Application of the latest technological advancements across industries is known to bring positive implications both for businesses and for consumers. AI, big data, IoT, blockchain technology and new business models applied in the insurance industry in recent years have proven the importance of tech-led transformation in traditional spheres.
Blockchain technology hasn't found application boundaries yet and the insurance industry could certainly benefit from the application of technology of the future. One of the applications of blockchain-enabled smart contracts—as seen by professionals—is in building a P2P or crowdfunded insurance model.
In addition, as Scott Gottlieb, resident fellow at the American Enterprise Institute (AEI), shared, blockchain technology could be used to design more intuitive insurance risk pools. As Mr. Gottlieb suggested, blockchain-powered risk pools would enable real-time auto-regulation of insurance subsidies. Real-time access to the most relevant and accurate data will boost the freedom of insurers to offer a customized solution without missing out on premiums. Blockchain technology can also be applied to increase transparency of the products insured. At the end, blockchain-powered smart contracts combined with real-time recording can be applied to automate the claims settlement.
Artificial intelligence is one of the most fascinating achievements of this century and is believed to stir waters across industries. Some of the ways in which AI could foster the development of InsurTech is data capture and storage, data analysis and policy tailoring with personalized bundling. Given the strict regulatory environment in the insurance industry, AI can keep companies up to date on the latest regulatory implementations and advise insurance companies on policy development and pricing models. AI also has a potential to prevent expenses on claims over staged accidents based on historical data.
Big ‘smart’ data is as important in the insurance industry as in any other. Just like with financial services companies turning to smart data rather than financial data, the insurance industry will have to find a new approach in risk assessment for more accurate policy tailoring.
Alternative data is believed to contain valuable information hidden from the official records. Social media networks, GPS locations and other alternative data can feed an intelligent underwriting algorithm with habitual portrait and make risk assessment and predictive analytics of possible risks regarding a particular person based on real, dynamic lifestyle rather than static records.
Common risks faced by everyone in a nation are now well-known and have formed quite a standard set of insurance policies against them. However, the environment we live in is ever-changing and new risks emerge over time requiring new forms of insurance. Data breach insurance for business owners, for example, or insurance against other types of cybercrime, which has grown rapidly in recent years.
Microinsurance is another interesting form of insurance addressing the needs of low-income or disadvantaged groups of population. It is a particularly relevant form of insurance for regions with a large number of population living in poverty and otherwise excluded from the financial and insurance industries.
Antonis Malagardis from the German aid agency Deutsche Gesellschaft für Internationale Zusammenarbeit, outlined the exceptional importance of microinsurance, saying, The point here is that people create a type of self-awareness that they are conscious that risk can happen any time… And they are the ones to contribute and be responsible in addressing this. They don’t necessarily rely on dole-outs, which is exactly the point of creating self-respect.
Given that out of 28 billion connected devices forecasted by 2021, 16 billion will be related to IoT, the importance of leveraging the connectivity is hard to overestimate. Moreover, out of the total number of IoT devices, 1.5 billion will have a cellular subscription by 2021. For comparison, at the end of 2015, there were ‘only’ ~400 million IoT devices with cellular subscriptions.
With the explosive growth rate of IoT devices enabled with advanced sensory technology, the network of connected devices will be able to accumulate a tremendous amount of meaningful data about one's activities and the environment. Over time, sensory technology will gain even greater importance as it will accumulate a significant amount of data. Underwriting will get to another level with the opportunity to put together historical data and detailed streams of current data from a variety of connected devices. It will allow the viewing of more accurate patterns and make accurate forecasts.
Powered by accurate and detailed data streams coming from sensory technology, underwriters will be able to play a significant role in developing new products, shaping tailored packages for different markets and define the pricing policy.
Some estimations suggest that by 2021, there will be 8.6 billion mobile phones globally, which indicates an outstanding opportunity for insurers to reach potential clients wherever they are. In fact, some particularly savvy entrepreneurs are already moving insurance into apps, while others are leveraging the power of social networks. At the end, the importance of mobile technology and its increasing role in a range of everyday activities will force insurance companies to look for ways to connect and engage with their customers in the most convenient way. Chatbots, in this case, may come in handy, if developed appropriately.