The Rise of InsurTech

 

FinTechs have become famous, even notorious for disrupting the financial industry. While retail payments services are reaching maturity, the insurance sector is still in its infancy. Nevertheless, it is fast expanding to become one of the largest FinTech segment, comprising over 500 companies in the world. Investments in the InsurTech (Insurance Technology) industry reached a record high in the first quarter of 2016, reaching a cumulative $3.4 billion since 2010.

 

What is InsurTech?

 

InsurTech is about technical innovation in the insurance industry. Just as in FinTech, there are various areas within InsurTech that technology can either enhance or disrupt:

 

  1. Product sales/distribution
  2. Risk Management
  3. Fraud Detection
  4. Claims Management
  5. Service Management
  6. Investment Management

 

InsurTech leverages on technologies such as Blockchain and smart contract technology to benefit from lowered costs, increased trust and higher cyber security. Such technologies nurture innovation in product/service offerings and distribution, enhance fraud detection and mitigation capabilities, and most importantly, allow for more personalised and accurate claims, service and investment management for today’s digital customers.

 

Will InsurTechs Succeed?

 

Younger and nimbler InsurTechs are swiftly capturing customers from industry incumbents. Among these players are InsurTechs ranging from the likes of BoundLSS, an app created to encourage healthier and happier lifestyles, interconnected with wearables and other devices, to aggregator firms like GoBear.sg and Zhong An, the first complete online insurance company.

 

The Tech in InsurTech

 

InsurTech leverages on technologies such as Blockchain and smart contract technology to benefit from lowered costs, increased trust and higher cyber security. Such technologies offer ease to a wealth of consumer data while eliminating the need for intermediary parties. We see InsurTech entering the narrative of the ‘shareconomy’ today. Insurance is no longer simply about transferring balance-sheet liabilities between parties, but a lifestyle product and service offering through digital engagement. Nearly 80% of insurance customers are looking for personalised and just-in-time insurance just like Cuvva, an hourly car insurance app.  

 

The three main technologies of the IoT relating to smart ecosystems, wearable technology and autonomous devices such as driverless cars all serve to alter the fundamental nature of risk in insurance, in particular, risk transparency and risk ownership. For one, wearable technology such as the Apple Watch would enable better understanding of each individual’s health state and therefore allow for more dynamic pricing models rather than just considering a static variable – age. In the Internet of Things, we have also seen a reduction of distance and friction across space and time made possible by smart ecosystems. In a smart home, for example, built-in technology would be able to detect and automatically turn off the electrical system when it detect anomalies. Driverless cars would also serve to enhance data collection and analysis of road safety. In auto insurance, this would imply that the ownership of risk no longer lies within the driver, but with vehicle manufacturers.

 

On a macro level, technology is also changing insurance business models. Aggregator business models are gaining popularity in their ability to offer enhanced offerings such as price comparisons and financial advice in addition to building personalised insurance plans for consumers.

 

The Future of InsurTech

 

In the vision of InsurTech entrepreneurs, insurance in the future is all about leveraging upon these innovative technologies in order to remain relevant and flexible to the shifting demands and consumption patterns of today’s consumers. In the advance into connected technologies, it is imperative that insurers have the skill and capability to build on customer data and establish trust relationships.

 

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