What is InsurTech and how can you harness its disruptive powers?
Written By: Ben Deda, VP of Marketing
Despite a $2.6 billion global investment in InsurTech startups in 2015, many insurance industry professionals are still unaware of what InsurTech is and how it is shaping their future.
What is InsurTech?
In an over-simplified world, many see InsurTech as being the technology behind insurance. In the real world, however, InsurTech is a term applied to the many segments of new technology that are disrupting the insurance space: smartphone apps, consumer activity wearables, claim acceleration tools, individual consumer risk development systems, online policy handling, automated compliance processing, and more.
InsurTech is not just an increase in the way that technology is disrupting the insurance industry, but is also changing consumer expectations and demands. Take for example the way that Uber has changed consumer travel preferences and demands, while uprooting a well established and once thriving industry.
Several immediate changes in consumer preferences are increasing demand for personalized coverage and improved customer interaction. Consumers are demanding more and will only continue to become more selective as they are exposed to innovative offerings such as:
Gym fee reimbursements from health insurance providers for wearing a fitness tracker that reports on exercise and health
Peer-to-peer insurance that covers home contents, private liability and legal expenses
Is InsurTech a threat to the insurance industry?
These numerous technological innovations that make up InsurTech have been primarily spurred by smaller, more entrepreneurial firms. Traditional insurance firms have been slower to adopt new methods, due in large part to the potential switching costs as they migrate to new systems or new processes. That said, spurred by increased demand for self-service and technological inputs from consumers, as well as increased competition from the smaller and more nimble firms, large insurance firms are more actively embracing new technology and seeking to be change agents within the InsurTech space.
When asked by RiskMinds conference organizers the edgy question as to whether or not InsurTech would destroy or save the insurance industry, industry insiders had mixed opinions. However, all of the Insurance CROs, CTOs and Chief Actuaries agreed that InsurTech is actively changing the insurance landscape.
"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
InsurTech's past, present and future
InsurTech came late to the game, mostly due to government regulation and the size and historical switching costs that insurance companies have had to bear to keep up with technology. The ever-increasing size of the insurable market provided additional incentive for entrepreneurs to begin to create innovative insurance products for the health insurance industry. Other industries began to follow suit. Most of the InsurTech roots gained traction in 2011. In 2011 there were 45 investors that made a total of $131 million in growth capital investments.
Today, InsurTech is a $2.6 billion sub-industry that stands to either disrupt or empower the incumbents of the insurance industry. In 2016 we are poised to see increased investment in the space, as well as some dramatic changes:
- Lifestyle apps from insurers will enable them to gather valuable data, and become more relevant in the eyes of their more connected consumers.
- Variable premiums will start to emerge in offerings as more personalized ratings will be possible due to new tech such as wearables, smartphone apps, and Internet of Things connected personal devices.
- "All in one" policies that cover more than just auto, home and boat will emerge as a convenient solution for consumers and profitable solution for insurers.
- Digital claims processing and loss handling continues to revolutionize the antiquated systems of the past.
Future of InsurTech
Like FinTech, global investments in InsurTech are increasing dramatically. Up 1900 percent since 2011 ($131 million in 2011 to $2.6 billion in 2016) the InsurTech segment is pegged for massive growth in the coming years. As consumers are presented with technological conveniences in other areas of their lives, from alarm clocks that go off based on sleep patterns, to self-driving automobiles, you will also see increased demand for easier to use, more customizable and more accurate insurance products - elements that rely on continued advancements in the InsurTech space.
Despite the increased demand by consumers for technology innovation from insurers, there are still some barriers to adoption that will need to be worked through in the coming months and years:
- -Complex insurance processes, such as health insurance claims, create a desire for face to face or over the phone human interactions
- -As adoption increases more and more data will be stored digitally - this opens up a host of potential problems with privacy issues and cyber attacks
- -"Acts of God," such as tsunamis, wildfires, earthquakes and flooding, will continue to plague insurers with unpredictability and falling outside data norms
- -Government regulatory hurdles will require concerted efforts between entrepreneurs, insurance firms and legislators
Along with these several barriers to adoption, there are numerous facilitators for adoption of InsurTech:
Empowered by technology, consumers are more likely to consolidate into smaller insurable groups that will enable tighter insurance product offerings and better risk management
With the assistance of technology matching systems, consumers will be able to interact directly with insurance providers, in many cases disrupting middlemen and make coverage more affordable for consumers and more profitable for providers
Increased sophistication of automated data collection methods will empower insurance providers to better tailor products, better serve their customers and increase long-term viability of their companies
Governments, with help from insurance groups, will begin to see that favorable legislation will lead to innovative solutions that will have positive outcomes for consumer quality of life and insurance industry strength
How to harness the disruptive nature of InsurTech
In addition to the obvious instruction that you should be "embracing technology," there are several items that you need to act on in order to harness the benefits from InsurTech's disruptive nature. Evaluate and simplify processes. Evaluate the four Ws: who, what, when and where.
From an internal perspective and a customer perspective, who is involved in carrying out a process? Making a list of who is involved in different processes will provide you with valuable understanding that will be used in your evaluation and simplification in the three other Ws.
What is happening in the process? Across the insurance customer lifecycle, there are numerous touch points and processes occurring. Simply brainstorming a list of these process points will start to get the creative juices flowing and you'll begin to see where your inefficiencies are and where your customers are feeling their greatest pain points. Some ways to improve these processes could include changing the sequence of the process events, the type of touch point taken (email, direct mail, social media, phone call, text message, in person, etc) or a change in technology to better connect with the consumer.
When are customers connecting with you? When can you amaze? Consider introducing a 24/7 self-help approach. While keeping staff on call at all hours of the night may not be possible for smaller firms, a well built mobile app or website with FAQs, self-diagnostic helps, or even tools to allow for submission of claims can go a long way. In addition to simply thinking of ways to improve the connection points you currently have, it would be valuable for you to evaluate additional times you can make a connection and amaze your customers. For example, when a customer has visited the gym for the 12th time in a month, send them a free t-shirt that they can start wearing to the gym - free advertising and some great "wow" factor!
Where are customers able to access your services? With the improvements in technology many insurers are moving away from call center assistance to online assistance. While this generally offers a great cost savings for the insurer, and is often-times the preferred method of interaction for customers, it does subtract the human element that is important in insurance. Consider adding a video conferencing option so that your customers can connect face to face with someone for help.
No matter the way that you leverage InsurTech to your advantage, it's important to remember that you need to be flexible and open to change. Your openness will ensure that you are not left behind as InsurTech surges forward.