November 26, 2016
No other industry has a bigger impact on the improvement of national welfare than insurance. In 2015, insurance premium volume worldwide reached $5.265 trillion, attracting ever-expanding attention to insurance business from across the field. In the years ahead, insurance landscape will no longer be an oligopoly as transformative forces will reach the level of impact enough to reimagine traditional business models. But what are those forces and how will they change insurance? An interesting opinion on the matter has been shared a week ago in the publication called Driving FinTech Innovation in Financial Services by Deloitte in collaboration with All Street, which emphasizes important external and internal forces that will impact general insurance landscape transformation, some of which we have noted before.
When discussing transformative forces in the insurance industry, it's impossible to leave aside InsurTech, which completely reimagined traditional business models, insurance products and delivery channels. As new types of insurance have emerged, it became clear that the status quo will not remain stable for long and the dominance of big players at some point will be in question. The increasing popularity of tech-powered insurance solutions served a signal for institutional players to seek fresh ideas through collaboration, accelerator programs and investments.
But the uniqueness of transformation in the insurance industry is in cross-industrial impact – there are major outside forces tremendously affecting the future of insurance. Self-driving cars, the sharing economy, IoT, sensor technology, AI, distributed ledger technology, drones, mobile technology, etc., are all changing the way insurance is structured, consumed and provisioned in the future.
It is already obvious to consumers that there is no need in paying for an annual flooding insurance when you have three very dry months a year, or for an annual travel insurance if you travel just for three weeks in a whole year. Nowadays, mobile applications enable people to buy micro-coverage on the spot with a few swipes on their phones.
Sensory technology is especially important in the light of the transition to usage-based insurance. Correct underwriting can have a significant effect on the policy terms and potential revenue of companies. Given the trends of moving from lifetime insurance to short-term and tailored insurance, it is especially important for companies to make the most accurate decision on the terms offered or risk to lose funds over unforeseen circumstances.
Moreover, 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.
An example here is RiskMatch, which provides an array of portfolio management and placement solutions, analytics, internal and external benchmarking capabilities, and information management services designed to enhance performance, reduce costs, facilitate growth and improve client service.
It [blockchain] may reduce the cost of premiums and claims given the ease and speed with which blockchain would manage very complex cases, which would reduce the cost of managing these claims to insurers and allow them to pass savings on to the customer.
Combined with the IoT, blockchain systems can make parametric insurance in home and auto insurance possible so that claims can be automatically paid based on predetermined conditions. Blockchain also could facilitate automated premium payments, complex claims assessment and claims payments.
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 play a vital role in the future, as they become more sophisticated and powerful in performing requests and communicating relevant to the customer information.