WHAT IS INSURTECH?
Insurtech is a combination of two words: Insurance and Technology (1+1, right). Insurtech is the use of technology innovations designed to find cost savings & efficiency from the current insurance model. Type: Auto, Business, Health, Home, Specialty, Travel.
Counting with accuracy how many insurtech companies exist is a tough ask. According to Hourly (a platform that automates payrolls, and worker’s compensation in simple clicks), as of 2018 there were over 1500 insurtech startups around the world, and due to the pandemic, that saw an increase in demand for digital services, more businesses sprung up and now there are approximately 3,475 insurtech companies around the world.
According to Grand View, the total insurtech industry market value in 2023 was $7.87 billion. The revenue forecast for 2030 is $152 billion and a forecasted growth rate of 52.7% from 2023-2030
“As of 2022, North America dominated the insurtech market and accounted for 36% of global revenue, owing to the increasing spending of customers for insurance-related products. Over the period 2023-2030, Asia-Pacific is anticipated to emerge as the fastest-growing regional market owing to the emerging economies and financial hubs in Singapore, India, and Hong Kong”, according to Grand View Research.
I hear some murmurs at the back, asking “How does it work?” Nice, I will get to that in a minute because in there lies the tea to my tome. I hope you notice these are resources we use in our day-to-day lives for other things, and yes insurance can utilize them to propel the industry to greater heights for the benefit of consumers and returns for the investors.
What gifts is technology bearing for insurance? The most common gift: I like to call them the flowers of insurtech. These flowers firstly give the scent of task optimization; they accurately perform many of the tasks freeing up time for more complex tasks. Secondly, a promising return for our dear investors in the insurance industry. Everybody wins. “Insurtech companies aim to build processes that automate certain processes and detect fraud…”:
- Artificial intelligence (AI): certain tasks are performed relying on technology, this includes repetitive tasks especially those that require human interaction are done by various AI tools with little or no errors for instance Chatbots. The employees are then able to focus on more complex tasks. These tools rely on data to perform efficiently.
- Automation: tools that automate tasks in the day-to-day insurance operations with high efficiency, and reduce manual human intervention, at an affordable and more sustainable cost.
- Big data, this is Gold: Big data is the vast collection and compilation of large amounts of data. This information enables insurance service providers to deliver better services, optimize costs, gain insights, profile consumers/risks, understand consumer behaviour, and boost revenues.
- Blockchain: if we have learned anything, ‘records are the lifeline of a business.’ Blockchain, famous for cryptocurrency, allows for secure recordkeeping, well-kept records are reliable and can be used to drive growth, and integrate varied insurtech platforms. News reaching me from the land of the free is that insurance companies are accepting premium payments in the form of Cryptocurrency, this trend is expected to favour growth of the insurtech market. Adoption of these tech developments helps companies strengthen market positions. Blockchain is expected to register the highest growth over the period 2023-2030. As I said, this comes with reduced operational costs and drives operational efficiencies. How does Blockchain do all this? Smart contracts, advanced automation, and strong cybersecurity.
- The Internet of Things: this is where technology meets physical items with the help of software. Items like wearables (smartwatches) to capture health data in real-time, tracking devices to capture location and surrounding details, drones for imagery and videography; very crucial information in risk profiling/ assessment, claims reviews et al that can be instrumental in product development, improving customer experience in the insurance industry.
INSURANCE OPERATIONS MEET TECHNOLOGY
Firstly, with the big data collected over time, insurtech companies can analyse and summarize data into information, for bigger and better decision-making. I bet you have heard the jargon ‘…data-driven decisions…’ technology aids that, insurtech does this for insurance companies.
Claims management, ordinarily involves reviewing a claim, claim computation, offering claim compensation, and payment of the agreed compensation. Companies need to leverage technology to gather and aggregate specific data points regarding specific claims, and automated systems/processes to pay out many claims with minimal human intervention.
Underwriting, an insurance activity that involves assessing risk, profiling the risk, and developing/offering insurance coverage suited for their needs, brick by brick, a company has a huge asset in the form of data that is being well utilized as shown earlier. Much of this data can be obtained automatically, with the help of the blessing that is technology.
The insurance market is heavily regulated worldwide, and this is done in different ways across different jurisdictions. Therefore, the validity of the insurance relationship can be witnessed by an insurance contract. Long story short, insurtech helps with contract execution by leveraging blockchain technology tools like smart contracts- which execute when a specific criterion is met.
‘WHY BREAK THE BANK FOR INSURTECH.’
Companies exist to solve problems, to the consumer’s satisfaction, therefore enhancing customer experience from the speeds of task execution and improved product development will give a company an edge over competition. Efficiency due to little or no human error. Emphasis on individuality, using inputs from various devices companies are grouping risks better and allowing products to be priced more competitively. Improved flexibility. Reduced operating costs. Decreased fraud through the automated fraud detection processes.
Notably, outside the important financial investment, there are some other qualitative costs, such as invasion of privacy. Certain tools encroach on information that was formerly private for instance most frequented locations, current locations, purchasing habits, and contacts. Also, catastrophic risks still pose a major threat to insurtech start-ups, as they require the capacity of the traditional insurance companies to underwrite and manage the risks, no man is an island.
WHERE ARE WE COMING FROM AND WHERE ARE WE GOING?
With the term only conceived around 2010, other financial sectors like banking and investment had introduced consumers to new possibilities through fintech, speed and convenience became the in-thing of banking and investment. These sectors have not looked back, the benefits to us consumers are unquantifiable, and the Return on Investment is quantifiable, investors are smiling at their banking applications.
Insurance was late to the party. Fortunately, there is still meat, and according to Hourly there has been rapid growth in the insurtech sector: by 2020 $16.5 billion was invested in the sector and is expected to grow as more technologies are developed.
There has been a slow uptake of technology by traditional insurance providers, at least not at the pace customers would have liked (this can be seen in certain operations of some insurance market players-names withheld). As they say, necessity is the mother of innovation, tech-savvy entrepreneurs have taken up the mantle to fill this gap. Insurtech companies have since opened in every area of the insurance value chain.
In the famous words of John F. Kennedy, “Change is the law of life and those who look only to the past or present are certain to miss the future.”
On my binoculars I see something. Demand for on-demand insurance is growing as it enables consumers to purchase insurance at their convenience. Consumers are growing weary of annual premiums; monthly premium payments are becoming a loud whisper in the business corridors. Businesses in on-demand insurance are using innovative technologies to improve the way on-demand insurance products are underwritten, created, and distributed. A win.
The growing penetration of smartphones worldwide is also expected to drive demand for insurtech solutions. A win.
Insurtech answers the question of efficiency and better customer experience. A win.
With insurtech, from the investors across the insurance value chain to the consumers, everybody wins.
Events in the insurance industry are unfolding in real-time and we are witnessing a remarkable transformation, now and in the next couple of years, Secure Tomorrow.
Marvin Guma | Claims Handler | Minet Uganda
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