How insurtechs are transforming the insurance industry

The insurance industry is constantly changing due to emerging disruptions, shifting demographics, and new entrants, forcing traditional players to adapt. Each time there’s a major leap in technology, customers expect the industry to respond with new products, new methods of distribution and new ways to evaluate risks. This has prompted insurers to acknowledge the role of technology as the primary catalyst shaping the insurance sector and accelerating their digital transformation efforts.

The introduction of technological advancements in the insurance ecosystem gave rise to ambitious startups that use disruptive innovations to change an industry’s competitive patterns. These companies employ AI, Big Data, online applications, wearable technologies, and cloud computing to develop comprehensive solutions that boost customer engagement, generate additional revenue, control costs, and launch new products and services. These innovation startups are commonly known as “insurtechs”.

Insurtechs use a combination of technology innovations to reimagine and augment traditional insurance processes and models, making them more efficient, automated and intelligent. They are reshaping the industry as we know it in a number of ways, as described below.

With the help of modern technologies, insurtechs are driving the construction of new industry infrastructure, aimed to facilitate the audit process, accelerate customer service, and bolster regulators’ supervisory capabilities. Insurtech companies empower traditional industry players to address areas ripe for innovation, such as:

• automation of manual and repetitive activities;
• integrating data from across the organization into a single customer record;
• enhancing personalization through delivering tailored products;
• lack of cross-departmental communication and knowledge sharing;
• shifting away from slow, burdensome legacy systems to modern cloud applications.

The emergence of insurtechs launched the reform of the entire industry value chain – from products and distribution channels to pricing, underwriting, claims, and risk management. This forced insurers to focus on reinventing customer engagement and experience, implementing data-driven processes, and optimizing operating models to create cost and production efficiency.

The most immediately notable contribution to transforming the existing value chain was made through the introduction of online and mobile-enabled digital services. They allow consumers to quickly explore, understand, and purchase products with minimum hassle, providing them with a more accessible and affordable experience.

Another readily visible example of this transformation is that IoT technologies, such as wearables, object sensors, and geographic information systems are shaping consumer behavior. With real-time data provided by these high-tech solutions, insurers can better assess risk, price their policies, and optimize services. This leads to lower costs and new channels for obtaining insurance services for a wider range of customers.

Harnessing emerging technologies provides insurers with new value-added competencies that can unlock previously untapped growth opportunities. They can thus focus beyond the existing value chain into adjacencies, such as agriculture, health, sharing economy, transportation, etc. This opens access to new markets and attractive geographies, where they can win and double down on specific customer groups.

For example, startups developing telematics solutions are currently among the major drivers breaking boundaries beyond insurance. By utilizing this initially industry-agnostic technology they fundamentally changed health-related insurance. With the help of telematics, insurers can now capture customer activity and fitness metrics through wearable devices and then use this data to promote a healthy lifestyle. It is a constituent part of an interactive insurance policy that rewards reaching health goals rather than focusing on coverage for medical expenses.

With insurtechs joining the scene, traditional insurance companies not only uncovered a potential competitive threat to their core businesses but also recognized the opportunity to offer diversified insurance products and services at competitive prices. Lower cost, shorter duration, and more precisely tailored policies are opening up the insurance industry to untapped corners of the market.

Tech innovations introduced by insurtech companies have eliminated barriers to access to insurance, especially for underserved clients like small businesses, independent contractors, or lower-income consumers. They eliminate in-person agent meetings, physical risk assessment processes, and tedious paperwork while offering a clearer understanding of insurance options and pricing policies. This will ultimately enable the insurance sector to better serve the public and accelerate product distribution.

As many services moved online due to the pandemic, fraud schemes have also gone digital. Phishing email scams, malware, and even social media quizzes are all being used by fraudsters to steal critical personal information and plunder billions of dollars from insurance companies every year.

According to the State of Insurance Fraud Technology Study, insurers are increasingly using advancements in information technology to detect fraud, analyze data, find red flags, and monitor suspicious activity. The most popular techniques in the fight against fraud are predictive modeling (80%), text mining (65%), reporting capability (64%), case management (61%), exception reporting (51%), data visualization/link analysis (51%), geotargeting (38%), and photo recognition (31%).

Such a variety of anti-fraud technologies is a result of close cooperation between insurtech companies and traditional ecosystem players. Over half (55%) of insurers have built in-house fraud detection systems, while only 20% rely on solutions created and hosted by a third party.

There are several new technologies that insurtechs have successfully applied to the areas of the insurance domain. The most prominent tech advancements that are currently shaping “new insurance” include:

AI-driven software is cutting out the human element by automating a great deal of the claim process that typically requires in-person investigation from internal teams. This not only leads to more accurate responses and faster turnaround cycles but also helps to create a well-rounded and digitized customer experience.

Modern data analytics tools allow insurers to harvest, normalize, enhance, and extract data to get deeper insights into customer needs, identify profitable pools of business, and make informed decisions on pricing and customizing policies. They also help to automate many aspects of the insurance process, including risk assessment, fraud identification, and underwriting.

In the information age, offline manual processes are increasingly transitioning into the digital landscape, making cloud computing an important component of insurance infrastructure. This technology allows carriers to sync their business data ecosystem and eliminate silos by providing powerful, on-demand resources that make it possible to seamlessly integrate information spread across various locations and increase speed-to-insights.

According to Statista, there are currently around 13.1 billion connected devices worldwide, and by the end of the decade this number will more than double, totaling 29.4 billion. These gadgets provide an abundance of data enabling intelligent identification, location, tracking, monitoring, and management of various assets.

IoT empowers insurance companies to take advantage of connectivity and embedded devices by providing accurate and real-time information that can be used in risk analysis. For example, by harnessing data from smart home devices, it is possible to monitor the state of electricity, gas, and water supply systems, ensuring early detection of critical conditions and thus averting possible damage.

Blockchain technology helps improve data security standards in insurance mainstream operations. Thanks to its distributed data storage feature, consensus mechanisms, and encryption algorithms, blockchain is an attractive candidate for deployment in anti-cyber fraud solutions, which can reduce risk management costs.

Companies can also use blockchain technology to enable smart contracts, which allow information, such as customer identification details or medical records, to be shared in a secure manner. Such agreements usually have embedded protocols that can automatically register claims, run authentication, execute and enforce contracts, and even initiate the payout without human interaction.

Insurtech companies will continue to expand their business reach alongside advances in cloud computing, big data, mobile applications, AI, and IoT. They are already redefining service standards by garnering consumer interest with tailor-made coverage, enhanced user experience, and affordable premiums.

With technologies becoming more expansive, nuanced, and precise, new opportunities for developing creative digital offerings will start to flourish. It’s the willingness to take the plunge that will define the industry leaders – both among the established ecosystem players and the emerging tech-savvy providers.

With more next-gen carriers and distributors joining the competitive landscape, the stakes of business survival will reach new heights. To secure their position, insurance companies should start making clear efforts to improve their agility, deliver better service, and create a positive customer experience. One of the best ways to achieve that is to team up with an innovative insurtech company that can develop new products and solutions to assist in underwriting future risks.

Grid Dynamics has over 16 years of experience building cornerstone capabilities for insurance companies. We help our clients revamp their enterprise ecosystems for resilience, growth and continual competitive agility with state-of-the-art analytical features, customer 360° views, and cloud solutions.

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