What is Insurtech?
Insurtech refers to the use of technology innovations to disrupt the current insurance industry model to improve savings and efficiencies. Inspired by the term ‘Fintech’ it is a combination of the words ‘insurance’ and ‘technology’.
The belief driving the new Insurtech businesses and the venture capitalists who invest in them is that the insurance industry is ready for innovation and disruption. Insurtech businesses are exploring avenues that large insurance companies are less incentivised to exploit, such as highly personalised policies, social insurance, and new data streams from Internet-enabled devices (for example through the Internet of Things such as vehicles that record driver behaviour price premiums dynamically according to that observed behaviour).
Traditionally, actuarial tables are used to assign policy applicants to a risk category. The group is then adjusted so enough people are included to ensure that the policies overall are profitable to the insurance company. This means that some people will pay more than they should, because of the basic level of data collected and used to group them.
Insurtechs look to tackle this data and analysis issue by using inputs from many devices (including GPS tracking in motor vehicles and health activity trackers on our wrists) to build more finely delineated risk groupings, allowing more competitively priced products.
Besides better pricing models, Insurtechs are exploring deep learning artificial intelligence to handle the tasks of brokers and to find the right mix of policies to complete an individual’s coverage. They are also exploring aggregating disparate policies into one platform for management and monitoring and creating ‘on-demand insurance for ‘micro-events’ such as borrowing a friend’s car, and peer-to-peer models to both create customised group coverage and reward positive choices through group rebates.
Similar to banking, insurance is a highly regulated industry with many layers of jurisdictional history that can make major insurers cautious, which may count for some of the lack of innovation that Insurtech is pushing.
Many insurance businesses are developing in-house capabilities and partnering with Insurtech start-ups and early stage businesses to deliver benefits. This includes seamlessly connecting consumers, agents, brokers, and insurers in a more modern and meaningful way. It also includes using advanced analytics by implementing predictive modelling solutions including machine learning. That in turn improves performance with more accurate fraud detection, pricing, underwriting, and claims. Process automation to streamline data and analytical workflows improves business efficiency and reduces costs. These are some of the benefits of using SaaS solutions to reduce technology complexities and improve software performance.