Insurtech is the application of technological innovations specifically designed to improve the efficiency of today’s insurance model. Insurtech solutions enable products to be priced more competitively by utilizing technologies such as AI and data analytics. These solutions are being widely adopted by insurers and MGAs in order to achieve lower-cost, better, and faster operational results. As a result, the insurance industry is investing more in technology, with the pandemic serving to accelerate the implementation of online platforms and new applications to meet consumer needs.
A report by Willis Re last October indicated that global investment in insurance technology (insurtech) start-ups totaled a whopping $10.5 billion in the first nine months of 2021. According to the reinsurer, two of the largest deals in the quarter were for cyber insurtech firms Coalition, which raised $205 million, and At-Bay, which raised $185 million. The year 2022 will continue to see insurtech investments explode.
What’s In Store This Year?
Hyper-Personalization: Pay Only for What You Need
An Accenture study shows that 75% of customers are more likely to purchase from a company that provides personalized services based on their individual preferences, taste, and needs. The insurance industry is looking to better incorporate the concept of personalization into its offerings. Products are being designed to meet the needs of individual customers, with customers paying a premium only for the risk they are insuring against. The latest trend is to incorporate cutting-edge technologies such as AI and big data to collect and analyze data in order to segment customers based on risk and offer customized premium plans.
With advancements on the Internet of Things (IoT), parametric insurance is proving to be a valuable supplement to traditional indemnity insurance. These IoT technologies are ideal for providing insights into the high-hazard perils most impacted by climate change, such as floods, earthquakes, and wildfires. To avoid adverse selection and set rates at a level associated with the risk levels, insurers are incorporating hazard-modeling tools into parametric insurance. This will enable them to write previously unattainable business while also providing policyholders with fair and transparent pricing for their insurance needs.
IoT in Insurance Claims Processing
Customers are frankly dissatisfied with the traditional insurance claim process, which has been in place for years. Insurance claims that take days or weeks to process can be extremely discouraging. IoT can help insurers move faster and make more powerful data-driven decisions. Insurance companies will no longer have to sift through paperwork and will be able to move through the claims process more quickly. Customers can now submit claims via mobile apps by taking a few pictures instead of filling out countless forms. Connected devices, such as biometric and environmental sensors, make it simple to calculate risk and adjust policies as circumstances change.
Niche-Oriented Insurance Startups
Insurance startups that focus on a specific customer segment are using technology to improve business efficiency. By leveraging interoperable data standards or tapping into ecosystems of open API-enabled technology solutions, insurance startups can quickly build client-focused solutions. This movement is also being fueled by new imagery technology, with AI and ML (machine learning) pushing the boundaries of what is possible when analyzing property imagery and digital records. Insurance startups can now create the most comprehensive property record possible, transforming niche markets into a viable growth business.
We can also expect to see more collaboration between incumbents and new entrants, as they often complement one another. In addition, reinsurers are increasingly getting involved in the insurtech space. For example, in October 2021, Munich Re announced the creation of a $500 million fund to invest in early/growth-stage companies in insurance and climate technology, cybersecurity and privacy, commercial and industrial equipment technology, and transportation.
The insurance industry is continually looking to innovate and integrate advanced technologies in their offerings, including with insurtech, to make them more attractive, personalized, and cost-effective. We’ll keep you posted as innovative approaches for insurance product development, distribution, and processing come onto the scene.