Technology has advanced tremendously in the last few decades. Today, numerous groundbreaking advancements are transforming long-established industries, allowing them to think outside the box and do things differently. The insurance industry is one of the many sectors that technology is changing for the better. It has become ripe for disruption by insurtech in much the same way as the banking industry has by fintech.

Even though insurtech has been around for close to a decade, many professionals in the insurance industry as well as policyholders are still unaware of what insurtech is and how it’s shaping their future. We have prepared this in-depth guide to help you demystify important aspects of insurtech and how it’s shaping the future of the insurance industry.

What is insurtech?

Insurtech - short for insurance technology - is a term used to refer to technology designed to enhance the operations of insurance firms and the insurance industry as a whole. Insurance companies are leveraging technologies such as big data, artificial intelligence, consumer activity wearables, and smartphone apps to transform the way they do business.

The history of insurtech dates back to 2010. The Berlin-based firm, Friendsurance, was among the first startups to adopt insurance technology. The idea of to start the first peer-to-peer insurance was inspired by a small group of people who offered support to each other in the event of a loss.

Friendsurance established the P2P insurance model to incorporate smaller groups into a bigger insurance pool and offer claim-free yeas with a cash-back bonus. Other early adopters of insurtech include on-demand property insurer Trov, and price comparison aggregator CoverHound.

Since 2013, the insurance industry has experienced an ever-growing demand for new digital technology as the customer demand for speed, convenience, and transparency increases. Annual investments in insurtechs have increased exponentially over the last few years. Reports indicate that investors deployed over $4.15B into insurtech startups globally.

How does insurtech work?

Two decades ago, it was tough for individuals or new businesses to find insurance. They would have to schedule an appointment with a broker and at times they would find out that that the agent’s operator didn’t have a cover option that suited their needs. Fast forward twenty years later, the process of buying all types of insurance has become easier, thanks to insurtech.

The important question here is – how does insurtech work? Insurtech works behind the scenes to increase the insurance that individuals and business owners have, minimize costs, and expedite the delivery of insurance coverage. Today, you can research, compare different insurance policies, and buy insurance online at the convenience of your home or office.

Why does insurtech matter?

The impact of insurtech is being seen in nearly every segment of the insurance sector, igniting the creation of simpler and consumer-friendly products and services. In the personal insurance world, customers can find new benefits from their insurers through apps, auto-monitoring devices, and wearable activity tracking tools. Thanks to insurtech, customers can complete an online application to compare insurance quotes in as little as 15 minutes.

In the business insurance world, business owners can shop for different types of insurance with just one application. Unlike in the past, when finding suitable insurance was a hassle, small business owners now have a single platform where they can explore their policy needs and get insurance advice from licensed agents in all 50 states.

The convenience brought about by insurtech is allowing individuals and businesses to access insurance products and services quickly, saving precious time and eliminating the aggravation that is associated with the process of buying insurance. Furthermore, customers not only have more insurance options at their disposal, but they can also tailor insurance coverage to meet their unique needs.

Another important question is – what are the potential insurtech applications in the insurance industry? Well, the following are the top 5 applications of insurtech:

Customer identity verification

Insurance companies, reinsurers, and brokers have to fulfill Know Your Customer (KYC) requirements on all of their counterparties. Part of this includes collecting considerable amounts of data on their clients and verifying their identity. While this process is crucial, it is time-consuming.

Customer identity verification is one area in which insurtech simplifies. For instance, PWC and Z/Yen have developed a blockchain-based prototype that is designed to expedite this crucial process. It stores records of customer documents and evidence of validation from issuing authorities. In addition, it gives the client the ability to maintain control of their customers’ records.

Claims management

Blockchain technology is one of the insurance technologies that are impacting the insurance industry. According to a PwC report, blockchain technology can be used to develop a single version of claim documents that can be evaluated and monitored by underwriters in real-time. This means that the blockchain technology can allow all parties involved in a claim to manage the process simultaneously.

There is also a possibility of developing a blockchain that will integrate all documents created in the claims process and made available to all underwriters. Since underwriters would be able to review and monitor claims at any time required, they can be able to process insurance claims without necessarily participating actively. Not only does this make it easier for underwriters to manage claims, but it also reduces the cost of administrating claims.

Another way in which insurtech is making claims management easier is through smart contract elements that allow for the automation of many processes. This brings about a number of benefits, including increased flexibility, increased transparency, and improved relationships between customers and insurers.

Fraud detection and risk prevention

Just like with other industries, fraud is a huge problem for insurance companies as high-value assets can be falsely recorded as stolen. According to the Insurance Information Institute, fraud accounts for about 10 percent of the casualty/property insurance industry’s incurred loss adjustment expenses annually. To identify insurance fraud, insurers invest millions of dollars every year.

In addition to simplifying and expediting the claims management process, blockchain can also help to detect fraud and eliminate errors by presenting a decentralized digital depository. It can autonomously authenticate the authenticity of policyholders and their claims, and give a complete transaction history. This helps to prevent the duplication of transactions, eliminate the roles of third-parties, and offers a provable public record of all transactions.

In addition to the above, blockchain technology can facilitate the storage of encrypted personal data and a public ledger. Everledger is a good example as it uses blockchain technology to develop a distributed ledger that documents transaction history details of diamonds. This ledger enables potential buyers and insurance companies to find out about the history of each individual stone. The ledger also has details regarding prior claims that have been made. This helpful information enables insurance companies to detect, put off, and counteract insurance fraud.

Smart contract formulation

Insurtech has also made it possible for insurance companies to make smart contracts. A smart contract is basically a contract between two or more parties, created and kept on the blockchain. Automated blockchain protocols then facilitate, authenticate, and enforce negotiation or performance of a contract. In other words, smart contracts are agreements that are written in code and are then put into effect by software.

A good example of how smart contracts work is a life insurance policy that pays an amount to a designated beneficiary after the death of the policyholder. The blockchain technology that underpins the smart contract performs instantaneous checks on online death registers that are linked to the blockchain and determines the pay-out automatically.

The self-sufficient and self-executing features of smart contracts increase the efficiency and speed of claims management. Thanks to blockchain technology, the processes of agreements registration, authentication, and implementation have become much easier as they call all be automatically enforced by computer protocols without the intervention of a claims assessor.

In addition, the cost of paper and the risk of fraud are almost entirely eradicated from the process. There is also increased customer satisfaction since the technology provides insurance companies and their customers with the possibility to manage insurance claims in a responsive and transparent manner.

Pricing

Blockchain technology is also being used to streamline payments of insurance premiums and claims. A good example of how insurtech is being used in pricing is that policyholders have an account from which digital currency payments are drawn on a continuous basis in proportion to the miles they have driven. The telematics system in each autonomous vehicle records and conveys the miles driven by the vehicle instantaneously, and the premium is automatically calculated and paid.

Best insurtech companies

The following are the top insurtech companies that have shown potential to influence, revolutionize, and even disrupt the global insurance market in the future:

​​​​​​​Life insurance

  • Haven Life: Founded in 2014, Haven Life is a MassMutual-backed insurtech company that offers a streamlined online experience for purchasing high-quality and reasonably-priced term life insurance. The company is wholly owned and backed by Massachusetts Mutual Life Insurance Company (MassMutual), which is a life insurance company with over 160 years of industry experience.
  • Bestow: Founded in late 2015, Bestow is a company that allows users to purchase life insurance products. It leverages prognostic analytics to instantaneously establish risk and grant customers with access to comprehensive life insurance solutions.
  • Ladder: Founded in 2015, Ladder is a California-based insurtech company that is targeting young customers who need life insurance but find the current system too time-consuming and expensive.
  • Ethos: Founded in 2016, Ethos is a company based in San Francisco, California that provides individuals and families with life insurance products. The company was founded on the fundamental idea that everyone ought to have access to decently designed, easy-to-understand term life insurance policies.

Health insurance

  • Stride: Founded in 2013, Stride is a California-based startup that is working in the insurance aggregators and policy management space. It is focused on connecting users with the best health plans at the lowest price in the shortest time possible.
  • Oscar: Founded in 2012, Oscar is a company that is headquartered in New York, NY, U.S. It offers plans to individuals, families, and couples who reside in parts of New York, California, Texas, and New Jersey who do not receive health insurance from their employers.

Homeowners insurance

  • Hippo: Founded in 2015, Hippo is a California-based company that has set the bar for the future of homeowners insurance with its fully automated, proprietary policy management, and proactive underwriting. This tech-enabled homeowners insurance marketplace has expanded to at least 11 states.
  • Lemonade: Founded in 2015, Lemonade is a New York-based company that offers renters and homeowners insurance powered by artificial intelligence (AI) technology and behavioral economics. By substituting brokers with bots and bureaucracy with machine learning, Lemonade guarantees a paperless and flawless process.

Auto insurance

  • Root: This insurtech company was founded in 2015 on the principle that rates shouldn’t be based on demographics, but rather by driving behaviors. Three years after its inception, Root became the 1st insurtech startup outside the healthcare industry to attain unicorn status, which is basically a privately-owned startup valued at over $1B. This insurtech has plans to run its operations in all 50 states and Washington D.C. by the end of 2019.

Bottom line: Insurance doesn't have to suck

The insurance industry, long perceived as a traditional industry – is among the industries that are undergoing a significant period of innovation and disruption. Insurtech is already revolutionizing many aspects, from the way customers purchase their insurance coverage and how data about risk is collected to the way investors are involved. In the near future, insurtech will be everywhere and many (if not all) of the conventional practices will be replaced by hi-tech tools that offer lower costs, better results, and happier customers.

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