The insurance industry is transforming at a fast pace. This is primarily due to the impact of a variety of breakthrough technologies, such as cloud computing, the Internet of Things (IoT), telematics, the blockchain, and artificial intelligence (AI). Insurance services have been modified to satisfy customers’ expectations and need for lower costs, increased transparency, and high processing speed.

Due to differences in the development of societies in various parts of the world, prospects for each trend differ significantly. We explore what prospects each trend of InsurTech has and how they may evolve depending on regional differences.

Peer-to-Peer (P2P) Insurance

The P2P model is not new to the insurance industry. It has existed for hundreds of years; now devices and the Internet have made it possible to find people with similar insurance interests, help them get into communities, and organize insurance coverage.

A couple of years ago this stream seemed to be truly disruptive, but in reality it has not been as impactful an option as originally thought. The reasons for this are:

• People are not willing to make their insurance claim history available to strangers, despite being in the same insurance community.
• Policy-holders need to govern and assess risk potentials for other members of their community, otherwise they will not be protected against fraudulent insurance claims.
• Government regulatory frameworks need to be worked around in many countries to protect the interests of policy-holders and maintain the stability and reliability of insurance companies.

Referring to the Hype Cycle, it seems as though the P2P insurance model is going to experience a “trough of disillusionment”, and only some of today’s startups will succeed in reaching the “plateau of productivity”.

However, P2P insurance has every chance to rise in developing countries where the population has strong family and community ties, especially in rural areas. Technology infrastructure is gradually increasing; this enables P2P insurance companies (e.g. Shacom in Taiwan, Wesura in Columbia, and Riovic in South Africa) to reach uninsured regions and use the opportunities there.

In Eastern Europe, people still don’t rely on banks and prefer to unite into communities and deal jointly with the validity and size of payments. This has enabled P2P insurance companies such as PRVNÍ KLUBOVÁ (in the Czech Republic) and Teambrella (in Russia) to grow and become successful.

Yet the missing link is scale and data. And herein lies an opportunity. Unless there is a reformulation to the optimal equilibrium between a prudent risk-assessment mechanism and the number of pool members, P2P insurance will remain unstable.

Microinsurance

Today, this term is generally used to define insurance services for low-income populations. Microinsurance provides a mechanism by which to protect people against particular aspects of their lives, such as accidents, death in the family, natural disasters, poor harvest, business bankruptcy, etc. This model of insurance will continue to grow in markets in developing countries.

The significant obstacle to microinsurance distribution is the absence of relevant communications channels. To reach target customer segments, microinsurance providers (e.g. Democrance in the United Arab Emirates, Kilimo Salama in Kenya, and UBL Omni Term Life Insurance in Pakistan) are increasingly integrating mobile phones.

One further aspect that may inhibit the dissemination of microinsurance is the fact that the regulatory environment needs to adapt faster to a changing market landscape and become more flexible. They must also support and encourage insurance companies to develop microinsurance schemes.

Blockchain

Blockchain allows (mostly financial) transactional information to be securely maintained and quickly validated based on distributed ledger principles. In the insurance industry, blockchain enables risk mitigation and fraud tolerance, better transparency, and enhanced data access, as well as time and cost savings.

Using the blockchain may empower specific insurance models, such as P2P insurance (e.g. Dynamis in the US) and microinsurance (e.g. Helperbit in Italy), to bring transparency to these new products. The most market-ready solutions could be constructed using a blockchain stack, where claims validation is electronically simple, like flight delay or cyber attacks.

However, today, insurance can benefit from using blockchain within traditional business components, such as AXA’s recent backing and acquisitions. This could become widespread in developed countries such as the US, UK, and Australia.

With the penetration of technology into remote, less-developed regions, insurance companies that use blockchain will have enormous potential to grow there. However, this growth will take some years, due to the present high reliance on paperwork in real-world processes.

Telematics, Biometrics, and IoT

Telematics was expected to transform insurance with car telemetry. However, apart from the young driver market, few policy-holders have yet shown interest in the benefits of the pay-as-you-drive approach, which uses a policy-holder’s driving habits to level up, mostly reducing the cost of insurance. Still, as propositions are refined to really offer value-added services to customers, interest and market coverage will go on developing and expanding, and will eventually come to cover a larger share of customers.

Stimulated by insurance companies, technology companies will develop more sophisticated devices that will allow them to predict risks, thereby preventing or more accurately assessing damages not just in the field of car insurance, but also homeowners’ insurance (e.g. protection against a leaking water pipe) and health insurance (e.g. tracking a person’s activity and health). Although the EU adheres to solidarity principles (pricing cannot be based on genetic predisposition or gender differences), in developed countries, including China, insurers are beginning not only to monitor the state of health, but also to conduct consultations with medical specialists online.

In technologically underdeveloped countries, telematics may grow in popularity, mainly due to devices and applications that have already proven their efficiency in other locations. The main restriction here is cost: it is not viable to install black boxes in cars when the former costs at least twice the value of the insurance premium; insurers would be better off spending their budgets on motivating traffic law enforcement agencies than on playing around with technologies for collision prevention.

Lack of regulation concerning the use of data and personal data protection also impedes wider penetration of such devices. For example, there are no specific regulations for the use of telematics or biometrics in countries such as Indonesia, Malaysia, the Philippines, etc.

The evolution in this direction has a strong flavour of the big data age, which breaks the boundaries of the traditional actuarial techniques that used to apply to insurance.

On-demand Insurance

On-demand insurance allows policy-holders to quickly insure their life, health, homes, objects (equipment, jewellery, etc.), and vehicles for a short time using a mobile application. This type of insurance is very promising and is popular among users, because it allows them to insure their belongings temporarily when necessary, while saving significantly.

There are two emerging models:

• On-demand insurance is commonly considered against a marketing backdrop, in terms of “saving costs”, seeing “insurance as a gadget” or as “smart insurance”, etc. Indeed, the tech stack here only brings an operational frequency boost, retaining all the classic risk-quantification and pricing principles. But there is exposure, presumably in cases where people “just happen” to switch on the cover before an accident happens.
• On-demand insurance is impacted by adverse selection: the lower the cost of the coverage for high-risk events, the poorer the insurer will be.

Cyber Insurance

Significant amounts of sensitive information are gained and stored on servers and in the cloud globally every day. To prevent data breaches and mitigate risks, cyber insurance has been added to the agenda. However, today it is difficult to provide an adequate assessment of risks associated with cyber attacks, their financial implications, and ways to settle insurance claims because the regulators are also playing catch-up. China is becoming a pioneer in this segment, and is trying to regulate the rules of cyber insurance at the legislative level. In the near future, it is expected that more countries will try to lay down rules for cyber insurance.

Conclusion

The development and implementation of new technologies in the insurance field appear to have been less rapid than was expected several years ago. However, the following points can be made in summary:

1. Developed countries (e.g. the US, UK, and EU countries) are the most innovative. We expect to see further development of new insurance models using blockchain, telematics, IoT, wearables, as well as on-demand insurance. However, no abrupt changes are expected; instead, the evolution will be systematic.
2. In poor and developing countries in Central Africa, Asia, and South America, using mobile channels has become the easiest way to distribute insurance, conduct risk assessments, and make insurance payments. There, microinsurance has the most potential.
3. P2P insurance may be distributed more widely in regions with strong community ties. The absence of tools for risk assessment and claims settlement has become the biggest impediment to using blockchain platforms to transparently communicate risks.
4. Advanced risk assessment and mitigation technologies (based inclusively on all the benefits of the big data age) applicable to insurance will include satellites that link to hotspots such as wearables, connected cars, and IoT.
5. New trends could emerge from the domain of insurance/risk data-aggregation solutions, including online risk prediction, stock market for data, etc.

InsurTech will come to concentrate more closely on improvement, optimization, and upgrading of existing insurance business processes, rather than giving birth to “new insurance” supernovas.