Although the word "InsurTech" dates back to at least 2010, its use and influence have grown in recent years. InsurTech - a portmanteau of insurance technology – is about how technology is transforming the insurance sector at its most fundamental level. InsurTech in Malaysia and the rest of the world has gained relevance over time as an integral component to the future of insurance. Like Fintech, it is a wide term that encompasses both insurance processes and products. It's also often used in the insurance business to describe disruptive start-ups and products. InsurTech's ascent has coincided with the advancement of Artificial Intelligence (AI) technology and the enhanced data-crunching capability now available to businesses.
The investment share of the InsurTech market fell dramatically in 2020, although analysts believe this is a one-time pandemic-related blip. Investment, as determined by the number of agreements completed, has consistently increased over the last decade, peaking in 2018 with 466 deals completed worldwide. As a result of the epidemic, several insurers have accelerated their digital transformation initiatives and are looking for InsurTech opportunities that can help them speed up virtual interactions in sales and claims while also lowering costs.
Data has traditionally been used by insurance companies to perform the core responsibilities of underwriting risk and assessing claims. According to Abbott, new technologies have boosted the volume and quality of data available, allowing insurers to uncover new efficiencies and develop new solutions. The initial concentration was on web-based and mobile-friendly content. It was always about making the experience more user-friendly. In recent years, we've seen technology like Artificial Intelligence (AI) and data analytics used to develop more efficient and cost-effective alternatives.
With that being said, there are few differences between InsurTech and conventional insurance that may lead to a disruption of the insurance industry, bringing more innovative and customer-friendly services to market.
New-age Insurance (InsurTech) vs Traditional Insurance
Because of their numerous branches and offline strategy, traditional insurance has large operational costs. New-age insurance on the other hand is built on a cost-effective and efficient online concept. Because these businesses are digital, their policies are less expensive than their traditional counterparts. So many InsurTech companies boast of seamless operations, low headcounts, intermediary-less (and highly scalable) operations, and exponential growth rates.
2. Buying Process
In the case of typical insurance, the purchasing process is cumbersome and multi-step. Customers are sometimes perplexed and angered by the lengthy and perplexing purchasing process. The purchasing process for new-age insurance, on the other hand, is exceedingly straightforward and quick. It's similar to the purchasing method used by major e-commerce companies. Something with which the users are familiar and at ease.
Many people believe that insurance is difficult to comprehend. This is primarily related to how information is delivered to them. Traditional insurance communicates features and benefits of plans using a lot of languages, whereas new-age insurance focuses on communication that is readable and understandable. According to a report by McKinsey; young, digitally savvy segments are less company-loyal and tend to treat financial products and services, including insurance policies, as interchangeable as long as they fulfill personal needs. They value convenience and like to execute transactions remotely—if possible, without direct interaction with the institution.
The claims process of an insurance firm is critical to its reputation. Policyholders frequently experience hurdles during the insurance claims process, making it difficult to file a claim. Customer-friendly and hassle-free claim settlement is a feature of new-age insurance, which addresses this issue.
The claims process of an insurance firm is critical to its reputation. Policyholders frequently experience hurdles during the insurance claims process, making it difficult to file a claim. Customer-friendly and hassle-free claim settlement is a feature of new-age insurance, which addresses this issue. In a recent Accenture research, the possibility to submit and follow up claims in more ways than before is essential in it all, as are smarter and faster insurance claims processing and the future of claim services on more digital devices. When it boils down to the insurance claims process itself, speed of settlement and process transparency are the key contributors to customer loyalty.
How could traditional insurance and InsurTech reach the “sweet spot”?
Traditional capabilities from incumbent insurers will be combined with new skill sets brought by InsurTechs to create the winning model.
Seasoned players with trusted brands, a loyal client base, excellent operations, and a vast amount of data at their disposal are incumbents.
They also have the financial resources to expand into new markets and introduce novel products and services. InsurTechs are digital companies and small businesses with a laser-like focus, superior technological capabilities, and an agile culture that is well-suited to innovate and drive change. When it works, the outcome may be spectacular. InsurTech is given the capacity to scale quickly and prove the value of its offering, whilst traditional insurance benefits from a portfolio of superior solutions to offer its consumers.
How InsurTech and insurance providers can collaborate better
1. Sponsorship – From the top
Any partnership must have executive buy-in to succeed. Top management must demonstrate dedication, conviction, and vision for how InsurTech will increase the company's value. In their quest for innovation, company executives must also allow the entire organization to explore and try out new ways, which may be at odds with traditional corporate culture.
2. Sight – Finding the right partner
Insurance firms must find a partner that can supply the essential aspects to assist them to reach their business goals, as the InsurTech industry is becoming increasingly congested.
Leaders must be able to identify, recruit, and maintain productive working relationships while also aligning their strategic corporate goals.
3. Separate – Allowing room to grow
It may take some time to develop a new solution, so InsurTech companies and insurance carriers should set up adequate and convenient testbeds to nurture technology until it is mature enough to be integrated into the business process.
Developing innovative platforms within the context of everyday corporate operations can be difficult, and office bureaucracy, protocols, and KPIs can stifle new ideas.
4. Speed - With caution
InsurTech enterprises, by their very nature, are more agile and nimble than traditional carriers, which have more organized but also slower decision-making processes. Companies must create a secure atmosphere in which tech-driven innovation may thrive, and teams must be given the freedom to grow and learn fast.
5. Stealth – Be patient
Finally, to keep a competitive edge, organizations must move quietly during the InsurTech development period. Because the InsurTech industry is still young and small, keeping these projects hidden until they're genuinely ready for deployment can only benefit the organization in the long run.
Criticism of InsurTech
Although many of these developments have been long overdue, traditional insurance firms are resistant to implement for a variety of reasons. Insurance is a highly regulated industry with a plethora of legal jurisdictional issues to contend with. As a result, the major corporations have made it this far by being extremely careful, which has led them to avoid working with any startups, let alone startups in their own, highly stable business. This is a greater issue than it appears, as many InsurTech businesses still rely on traditional insurers for underwriting and catastrophe risk management. As more InsurTech businesses gain consumer interest through a refined model and a user-friendly approach, incumbent players may warm to the idea of InsurTech and become interested in purchasing some of the innovation.
How Can InsurTech Benefit Traditional Insurance Companies?
1. Customer Connection
InsurTech companies can deliver Robo-advice through a digital user interface using artificial intelligence (AI) and chatbots. Chatbots are an important part of InsurTech since they improve the client experience and may even be able to replace insurance professionals. InsurTech enterprises may build trust and understanding with chatbots by guaranteeing that cheap and high premium insurance is still viable for their consumer base. However, before implementing chatbots, InsurTech companies should assess their customer base. Insurers may identify chatbots that suit their clients' demands by studying their customers and personalizing criteria such as culture, target market age, smartphone penetration rates, and level of education.
2. Targeted Products
InsurTech firms can provide customized, low-cost insurance based on consumption or value-added services. Machine learning and artificial intelligence have the potential to significantly disrupt the industry in this sector. Insurance companies have access to a lot of client data and with the help of companies and their specialty partners. Tech can create bespoke offers based on that data. This customization can be aided by property and casualty (P&C) insurance software combined with advanced analytics and machine learning. Customers' total insurance costs will be reduced by smart P&C insurance software, which will attract them to the company. Property and casualty insurance products and solutions can benefit from such services, ultimately leading to the enhancement of property and casualty insurance products and offerings.
3. Data-driven insights
With access to a variety of data streams ranging from telemetry to smartphone apps, InsurTech companies may use machine learning and artificial intelligence to create a completely new experience. Due to the scarcity of relevant data, AI analytics are playing an increasingly important role in guaranteeing that the data can be creatively used to produce insurance products and services.
Everything from client acquisition to risk models to marketing and distribution channels may be improved with AI. Furthermore, AI is critical in improving the quality of products and services by learning from client insights. It could also help enhance the safety of data and information for the client, through biometric safety measures such as biometric-based time and attendance record-keeping to facial authentication.