Technology has advanced tremendously in the last few decades. Today, groundbreaking advancements continue to transform long-established industries, allowing them to think outside-the-box and do things differently. For better or worse.
Insurance is one of the many sectors that technology is changing for the better. The industry's archaic processes make it ripe for innovation and disruption, similar to the banking industry. However, strict regulatory bodies and compliance standards have made the new ways of doing business in the digital era difficult to adopt.
That's why many insurance professionals and policyholders alike are still unaware of what insurtech is and how it’s shaping the future of the 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 wearables, and smartphone apps to transform the way they do business.
The history of insurtech dates back to 2010. Berlin-based Friendsurance was among the first to embrace technology in the insurance space. The idea to create the first peer-to-peer (P2P) insurance community was inspired by a small group of people who wished to offer 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 Trov, an on-demand property insurer, and CoverHound, a price-comparison aggregator.
Over the past decade, the insurance landscape has shifted dramatically. Demand for new technology and the talent to create it knows no bounds. Consumers crave speed, convenience, and transparency more now than ever before. According to CB Insights, global investment in insurtech rose from $348 million in 2012 to $4.15 billion in 2018.
No wonder why insurance has followed suit. It's the only way to keep up in the digital era.
How does insurtech work?
Buying insurance has long been viewed as a difficult, dreaded experience.
- Dealing with pushy sales agents who are incentivized by commissions, not the customers' best interests.
- Navigating piles of paperwork that are filled with confusing jargon the average person doesn't understand.
- Spending weeks (if not months) going through the process, only to find out you've been denied coverage anyways.
People didn't just procrastinate fulfilling their coverage needs; they would avoid buying insurance, period. Insurtech is changing this for the better by:
- Making coverage more accessible.
- Lowering costs for insurers and policyholders.
- Expediting the issuance of your coverage.
Today, you can conduct research, compare your options, and buy insurance online from the convenience of your phone or computer. The impact of insurtech can be found in nearly every corner of the insurance sector, from homeowners insurance to disability insurance.
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The convenience brought about by insurtech allows individuals and businesses to access insurance products and services quickly, saving precious time and eliminating the age-old frustrations of buying insurance. Customers not only have more insurance options at their disposal, but they can also tailor insurance coverage to meet their unique needs.
Individuals can find new benefits from insurers through apps, auto-monitoring devices, and wearable activity tracking tools. Small business owners can shop for different types of coverage all in one place. Just about anyone can complete an online application in a matter of minutes.
Unbiased comparison sites and slick application processes are great, but they're only the tip of the iceberg. Here are five more key applications of insurtech.
Customer identity verification
Insurance companies, reinsurers, and brokers must fulfill Know Your Customer (KYC) requirements on all of their counterparts. This means collecting a considerable amount of data on their customers in order to verify that they are who they say they are. As you can imagine, identity verification has traditionally been rather time-consuming.
Customer identity verification is one area that insurtech offers relief. For instance, PricewaterhouseCoopers (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. It also gives the company, reinsurer, or broker the ability to maintain control of their customers’ records.
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 blockchain technology can allow all parties involved in a claim to manage the process simultaneously.
Blockchain also presents the opportunity to integrate all documents created in the claims process and make them available to underwriters. 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 like increased flexibility and transparency, as well as improved relationships between customers and insurers.
Smart contract formulation
Insurtech has also made it possible for insurance companies to develop paperless smart contracts. A smart contract is basically a blockchain-based contract between two or more parties. Automated blockchain protocols then facilitate, authenticate, and enforce negotiation or performance of a contract.
For example, consider a life insurance policy that pays an amount to a designated beneficiary following the death of the policyholder. The smart contract performs instantaneous checks on online death registers to automatically determine and trigger the payout.
Smart contracts increase the efficiency and speed of claims management. Agreements registration, authentication, and implementation have become much easier as they can be enforced by computer protocols without the intervention of a claims assessor.
Not only does this drastically reduce the risk of fraud, but it can also increase customer satisfaction. Technology allows insurance companies to manage insurance claims in a more responsive and transparent manner.
Fraud detection and risk prevention
The Insurance Information Institute reports that fraud accounts for about 10 percent of the property and casualty insurance industry’s incurred loss adjustment expenses annually. As a result, companies invest millions of dollars every year to ward off insurance fraud.
Insurtech can also help detect fraud and eliminate errors by presenting a decentralized digital depository. This means checking the authenticity of policyholders and their claims and providing a complete transaction history. It can prevent the duplication of transactions, eliminate third-parties and document all transactions for public records.
Insurtech can also facilitate the storage of encrypted personal data and a public ledger. Everledger's work in the diamond industry is a prime example. The company uses blockchain technology to develop a distributed ledger that documents the transaction history of diamonds. The ledger also has details regarding prior claims that have been made. This valuable information enables insurance companies to detect and prevent insurance fraud.
Insurtech is also being used to streamline payments of insurance premiums and claims. For example, take auto insurance policyholders who have an account from which 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 in 2022
So, who exactly is responsible for these technological advances in insurance industry?
For starters, here are a handful of the best insurtech companies in 2020 that you need to know (aside from Breeze, of course).
- Haven Life offers a streamlined online experience for purchasing high-quality, reasonably-priced term life insurance. The company is wholly owned and backed by Massachusetts Mutual Life Insurance Company (MassMutual), which has over 160 years of industry experience.
- Bestow allows users to purchase life insurance products online. It leverages prognostic analytics to instantly establish risk and grant customers access to comprehensive life insurance solutions.
- Ladder is a California-based insurtech company that caters to young customers who need life insurance, but find the current system too time-consuming and expensive.
- Ethos provides individuals and families with life insurance products. The company was founded on the fundamental idea that everyone should have access to decently designed, easy-to-understand term life insurance policies.
- Stride is a California-based startup that works 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 offers health insurance plans to individuals, families, and couples who reside in parts of New York, California, Texas, and New Jersey that do not receive coverage from their employers.
- 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 homeowner's insurance marketplace has expanded to at least 11 states.
- 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.
- Root was founded on the principle that rates shouldn’t be based on demographics, but rather by driving behavior. Three years after its inception, Root became the first insurtech startup outside the healthcare industry to attain unicorn status — a privately-owned startup valued over $1 billion.
Bottom line: The future of insurance is bright
Insurance isn't the only old-school industry experiencing a significant period of innovation and disruption. But it may be the one that needs it the most.
From online application processes and automated underwriting to claims management and fraud prevention, insurtech has already made major strides. Lower costs, higher operational efficiency, and better customer experiences are just a few of the benefits of insurtech the industry has to look forward to in 2020 and beyond.
Jack Wolstenholm is the head of content at Breeze.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.