Technological developers or players are venturing into insurance industry to furnish the industry with disruptive and innovative solutions. Fintech has been witnessing a similar trend. Digitization of operations and offering services through digital channel is one the key aspects of the fintech. However, the trend is changing at a swift pace, with technology developers not only focusing on the target customers but also competing with traditional banks for their share. As a result, traditional banks or incumbents are engaging in one form of partnership or other with the technology giants to retain their share in the market. Traditional insurance industry is also at the cusp of similar change with insurtech.

What is Insurance Technology?

Traditional insurers have started noticing new technologies that are transforming the lives of their customers. Breakthrough of new technologies such as Big Data, Artificial Intelligence and Internet of Things and emergence of technology-led new entrants are stressing on the need to reinvent themselves. Just like fintech, insurtech is a combination of words, insurance and technology, which refers to the implementation of innovative technologies in helping to reduce the cost for consumers and insurers, while improving efficiency and enhancing customer satisfaction. Earlier, these changes or innovations were only visible to insurance providers as they were working in the backend. Thanks to experiments by insurers with chatbots, application and other tools, these changes are visible to customers as well.

According to TechSci Research report “Global Insurtech Market By Technology (Cloud Computing, Big data & Analytics, Blockchain, Artificial Intelligence, Internet of Things, Others), By Deployment Mode (Cloud and On-premises), By Insurance Type (Commercial Insurance, P&C Insurance, Others), By Region, Competition, Forecast & Opportunities, 2024”, the global insurtech market is anticipated to grow at CAGR of over 30% during the forecast period. The funding for insurtech reached figure of USD 3 Billion in the first two quarters of 2019 and is forecast to surpass USD 5 Billion by the end of the year. Factors, such as personalized product offerings by analyzing data, improved functionality of payment and risk assessment, among others are anticipated to drive the growth of insurtech market, globally. Insurance industry is currently facing the challenge of managing large amount of data, therefore, there is urgent need for adopting digital technologies which not only helps to optimize the work and price of the target product but also in monitoring data.

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What all technologies are involved in Insurtech?

Insurtech or technology-driven insurer is implementing plethora of technologies to improve customer engagement and provide faster service. Some of the major technologies used by them include: 

Artificial intelligence (AI) in Insurtech:  

From Alexa, Siri to chatbots, artificial intelligence or AI has moved out of research labs and become a house-hold technology. Combination of machine learning and natural language processing (NLP), which are two branches of AI can be used to interact with human users and improve the capability of devices. One of the major implementations of above-mentioned technology is chatbots. Modern day insurance providers are readily adopting and implementing this technology as these bots are available 24x7 and provide answers to the queries in real-time.

Internet of Things in Insurtech:

Internet of things or IoT refers to collection and sharing of information with connected devices in real-time. Several industries are already utilizing IoT and insurance industry is no different.

Telematics is one of those illustrations of IoT, several countries including India, US have mandated GPS for vehicles to collect data such as driving speed, braking pattern and track the location of vehicle. Accumulated data is then used for insurance telematics, i.e. customized insurance plan formulated based on the driving pattern of the driver. Moreover, alike India, which has Motor Vehicles Act, 1988 and 2019, numerous countries have one or other form of insurance related acts in place for the safety of vehicle owner, which is boosting the adoption of insurance telematics. Recently, John Hancock, a life insurance company, started offering vitality policies with Fitbit tracker to monitor health and propose premiums based on that. 

According to TechSci Research report “India Insurance Telematics Market By Vehicle Type (Passenger Car & Commercial Vehicle), By Type (Third party Insurance & Comprehensive Insurance), By Source (Insurance Agency & Online), By Premium Type (Personal Insurance Premium & Commercial Insurance Premium), By Device Type (Hardwired; On-board Device (OBD); Smartphone & Embedded), Competition, Forecast & Opportunities, 2030”, India insurance telematics market is expected to grow at a steady rate during the forecast period. Growing concern for safety and security among people is the key factor, which is fueling market growth. The telematics information is beneficial in many circumstances, such as, to communicate with the police instantaneously in case of an accident for prompt action, which is anticipated to drive the growth of India insurance telematics market in the forthcoming years. Telematics systems assist automotive companies, insurers, and drivers with the highest safety feature.

Smartphone apps:

Several insurance companies have launched or in process of launching mobiles apps on android and iOS platforms. Growing user base of these apps can be attributed to following factors:

o   Comparison and identification of right policy based on your requirements

o   Reminders on insurance premiums and updates pertaining to new policies

o   Identification of nearest customer locations

o   E-application and easy submit and track status of claims

Machine Learning:

Machine learning utilizes algorithms and mathematical models so that machines can learn over time by extracting trends or patterns from raw data. Insurers are using machine learning for application such as to predict demand for any product and its premium, identify patterns of behavior to detect frauds, automate claim reporting and processing.

What are the Ongoing Trends in Insurtech Market?

o   Customer is at the Heart of Revolution:

Majority of insurtechs in the industry are initially focusing on retail clientele, followed by commercial sector. As retail sector comprises clients or customers that are looking for convenience and online & mobile channels offer insurance quotes online 24x7 and easy submission of claims, which can help the insurer to increase their share in the insurance industry. While in the commercial space, insurtechs are experimenting with new product offerings such as peer to peer lending and digital brokerage which not only offers loans and other services within hours but also allows to directly connect with the new lender or clients. Peer to peer insurers such as Lemonade, Inspeer, among others are using policyholder pooling for offering insurance at reduced premium with digital contracts.

o   The share of insurance-driven companies is projected to grow at a rapid pace. Increasing penetration of start-ups in the insurance industry presents a challenge before the incumbents. Also, insurance industry is expected to be technologically transformed in the next 5 to 10 years; therefore, insurers must start focusing on digital transformation and start putting customers at the heart of everything.  Above mentioned changes represent a 180-degree shift in the ideology of insurers, as a result, several incumbents are partnering with insurtechs. For instance, Prudential Financial Inc. purchased Assurance IQ Inc, which is an online insurance startup, for USD 2.35 Billion in 2019, as part of investment in technology.

o   Increased Automation & Ultra-personalized policies:

Automation is not only limited to IT & Telecom; insurance industry can also benefit from it. Right now, involvement of chatbots is only limited to queries but it can be extended to analyzing complex issues or projecting trends in the market with the help of predictive and data analytics.

One trend that insurance industry is embracing in 2019 is hyper-personalized policies. Companies are coming with policies that are customized based on the needs of the customers. They are using predictive analytics for this to reduce the cost of policy for both the parties.

What are the Upcoming Trends in Insurtech Market?

o   Growing Focus on Cybersecurity:

Almost every sector struggles with cybersecurity issue but when money is involved, the risk is slightly on the higher side. With the wave of digitization, there is need for making online platform more secure as these networks are using 3^rd party gateways for transactions. In 2018, 135 breaches took place exposing 1.7 million records from the BFSI industry. As a result, technology driven companies are likely to invest more for making their platforms secure and reduce risk.

o   Focus on Customer Experience & Engagement:

As mentioned earlier, creating online presence and chatbots help to increase reach to end customer; however, that is not enough for improved customer experience. Companies operating in the insurance industry need to ensure that their digital platforms are compatible with new devices.  With the increasing internet penetration, boom in the smartphone market, insurtechs can gain trust of millennial generation as well, which can help them to increase customer base.

The companies operating in the insurance industry are considering customer engagement and customer interaction crucial for their success and modifying their business models. Customer loyalty rewards is one such strategy which companies are implementing to build the relation between customer and company.

Why customer engagement is crucial & How it can help insurtechs?

Encouraging customers to interact with insurers can help company in obtaining information about their clients. Customer engagement is crucial as it helps to spot low risk customers which is powerful tool to access whether the client needs to be retained or they pose a threat. 

Challenges in the adoption of Insurtech

o   Insurance is one of the highly regulated industries and strict regulations can act as barrier for the startups. Due to several layers of jurisdictional policies that insurers follow, traditional insurers shy away from working with technology-based startups.

o   Information related to customers, their policies, is one of the key aspects of insurance industry. Insurers can use big data to detect fraud and optimize processes and can transform their data models but before that approval for the use of data is essential.

o   Another challenge for the industry is transparency pertaining to rates levied on the policy holders or customers. Since, insurance plans can be customized based on the needs of a customer; therefore, rates will differ for different customers and these rates need to be approved by insurance regulator of the state in which insurer wants to offer their services. Above mentioned process is time consuming and can delay the entry of insurer to the market.

o   The years 2018 and 2019 witnessed significant growth in the insurance technology market; however, economic slowdown due to ongoing trade war between US and China can result in reduced investments in the insurance industry consequently hampering the growth of the market.

Despite all the challenges, insurtech can be regarded as inspiring threat as it is pushing well-established insurance bodies to take necessary steps required for the adoption of innovative technologies. Not only insurance industry is witnessing huge investments by venture capitalists but also insurtech companies are concentrating on avenues such as social insurance, utilization of gathered information for dynamic price premiums based on the behavior of the customer and offer ultra-customized policies which is expected to drive global insurtech market in the forecast period.