The insurance industry has remained the same since its inception and has significantly lagged behind banks in adopting financial innovations. Recently, new players have offered new ways to underprice risk, creating new types of premiums and servicing consumers in a tightly regulated on-demand economy. This chapter will expose the reader to the impact of these new technologies on reorganizing specific points in the value chain and in unlocking new innovative business models, which will ultimately benefit both customer and the insurance industry, and will serve as a mechanism to internationalize and decentralize the resulting InsurTech innovations.

Introduction

Over the years, incumbent insurers have been able to implement incremental improvements around online customer servicing. New entrants are demonstrating that this approach is no longer sufficient.

As it relates to risk and underwriting, insurance firms compete with each other, in part based on their ability to replace that uncertainty with (in aggregate) remarkably accurate estimates outcomes. Years of fine-tuning these estimates have resulted in actuarial tables that mirror aggregate insured behaviour and conditions. The standard insurance underwriting techniques are still quite costly and time consuming due to the manual nature of data collection and processing. In life insurance, for example, an insurer will typically spend approximately one month and several hundred dollars underwriting each applicant.

Clearly there must be a better way. New forces are impacting the value chains of a number of industries such as financial services and insurance. This causes a reconfiguration of the way in which insurance is delivering value to customers through new and innovative business models and/or technologies. Airbnb and Uber provide on-demand collaborative services, a trend that is one of many, disrupting how the insurance industry develops and markets products to the on-demand economy’s unique customer base.

With new and emerging technologies unlocking the power of large amounts of data, digitalization of the production processes, interconnectivity along the value chain and within the value network, and an overall new digitally enhanced customer experience, the entire insurance industry has the potential to reorganize itself leading to even more transformative business models. Examples include insurers’ use of specific telemetric sensors and other elements of the Internet of Things (IoT) to underwrite and price policies in a matter of seconds due to the real-time nature of the data being analysed, as is the case with auto insurance. Other examples include the application of robotics and AI (artificial intelligence) and analytics that can improve service turnaround times by reducing the need for intervention as well as provide radically different experiences for customers through faster claims settlement, easier onboarding and renewals, and fraud controls to name but a few. This lowers premiums for customers, increases revenue, and lowers costs for insurance companies, making them even more competitive

For the first time in over a decade, the insurance industry has seen a proliferation of new players offering new ways to underprice risk, creating new types of premiums and servicing consumers in a tightly regulated on-demand economy.

Key Value Drivers of InsurTech

With intergenerational customer centricity fuelling the disruption, Gen X and millennials are redefining the manner of engagement in the industry. In accordance with a study by PwC, in 2020, millennials and Gen X will control more than half of all investable financial assets or about US$30 trillion. Eighty percent are weary of traditional non-transparent brick and mortar financial services providers and prefer using online channels. Millennials want to be in control of their finances and are extremely cost conscious. This generation has grown up with the digital experience offered by companies such as Google, Amazon, Facebook, and Apple. They expect the same level of information transparency and social customer experiences used to making purchase decisions from their financial services providers. They are now faced with an insurance industry that is stuck in a time warp of highly intermediated, vague products through high-cost and low-service channels. In summary, transparency, simplicity, and attractiveness are facilitating the emergence of InsurTech as a viable industry of its own.

Uncovering Opportunities in the Insurance Value Chain

A quick look at the critical pieces of the insurance value chain can show the tremendous impact and opportunities for new technologies:

• Marketing, sales, and distribution. The distribution model is moving online, market boundaries are blurring, and business-to-business and business-to-consumer products have the ability to cross borders enabling the internationalization of products and services and leading to changing dynamics in the global ecosystem. As we shall see later, the utilization of technologies such as the distributed ledger system can create a global decentralized insurance system.
• New business underwriting. New pricing models are based on new value configurations such as peer-to-peer sharing. Underwriting also involves new risk-based models leveraging big data, personalized products, and innovations such as usage-based insurance.
• Policy and claims management. Digital claims handling, including automated assessments and fraud detection, and online/self-servicing of claims are all opportunities that InsurTech can offer in transforming data.
• Payments. While payment innovation has been a focus within the finance sector, very little has been done to apply some of these payment or “PayTech” innovations to the insurance value chain. These include the use of mobile wallets that can be also incorporate risk pooling models, peer-to-peer insurance models, and streamlined payments, among others.
• Customer service. With smart devices everywhere, consumers demand more contextual real-time information to facilitate their decision-making. There is also a high expectation for a seamless, frictionless experience. There is a need for end-to-end digital transformation along the customer journey with multiple touchpoints. Technology such as AI is being applied to either assist customers or in contextualizing all this data in a manner the customer can understand in real time.
• Product design, development, and management. This allows insurance companies to repackage existing products that could be on-demand or modular and deliver them using online and mobile channels or in a different manner. It also allows for the development of new digital products and services and the personalization of products.

Future Applications: GAME Changing Technologies to Further Scale InsurTech

Conclusion

Overall, insurance firms are not investing enough in change to keep pace with the InsurTech trend and its transformation opportunities. In many cases, traditional insurers are being displaced by new players that are reliant on digital business models. The easy accessibility of cloud and mobile technologies as well as big data is changing the enterprise landscape. It is these new players that have found ways of becoming global players with their ability to scale these startups. The resulting impact would result in a unique InsurTech industry, with its own rules and norms. Will the industry catch up?