Insurtech has become a major part of the insurance market, with record-breaking amounts spent on technology-based innovations that can revolutionise the sector. It’s an area ripe for investment – with more than $1bn (£760m) spent every month on investment into insurtech startups in 2021, according to reinsurance broker Wills Re.
The momentum that carried insurtech through 2021 is forecast to continue in 2022, with plenty of areas within the sector ready for disruption. But what should you be looking out for as the next big thing? Here are five tech trends that could transform the way we buy, sell and claim on insurance.
Matt Connolly is CEO of Sønr, a startup scouting and open innovation platform targeted at the insurance industry, and his job is to keep track of the latest developments changing insurtech.
He says the most obvious trend involves artificial intelligence and machine learning. While the application of AI in insurance policies is becoming more common and widely accepted, what’s still ripe for revolution is pricing and underwriting.
“You’re talking about culturally a group of underwriters on a global basis being pretty much late to the innovation party and not accepting all the complexity of the changing model of insurance,” Connolly says. But slowly, the industry is waking up to the value that AI can provide.
In the past 12 months companies such as Tractable have become insurtech unicorns – companies valued at more than $1bn – for what they could potentially deliver to the industry. Such companies use AI to try and improve the process of not just offering insurance products, but also paying out on claims.
“You might have a car crash and use your smartphone to inform your insurer,” Connolly says. AI could then diagnose the cost of repairs by analysing images of the damaged vehicle taken by the policy-holder.
First introduced in the 1990s, usage-based or parametric insurance often relied on hardware. “Carriers had to provide the hardware and customers were expected to install it, use it to track their behaviour and then return the device via mail,” says Udi Ziv, CEO of insurance software company Earnix. “There was limited value even under the most optimal circumstances.”
Things have changed since – and the ability for insurtech to harness those changes has been key to the resurgence of parametric insurance. Almost everyone has a smartphone that is capable of tracking where they are, how fast they’re travelling, and where they visit on a given day. While there are obvious implications for car and vehicle insurance, the reality is that the picture painted of our lives and habits by seeing where we go on a day-to-day basis is a boon for insurers in all areas.
It means that it’s possible for insurers to more accurately estimate risk against individual consumers, and make changes on that basis. Yet to properly implement that kind of parametric, tailored insurance requires a lot of work within organisations, says Jay Chitnis, senior business consultant at software company Endava.
“To be able to personalise their offers in the first place, insurers need to understand what data is available in their organisation, if it is usable and how to exploit the data to get to the insight within it that is so valuable,” he says. “This is easier said than done as many insurance companies’ systems evolved organically, leading to siloed data islands that are hard to utilise.”
“As the market changes, companies are struggling to adapt at the pace of change,” says Connolly. Low-code/no-code development allows insurance providers to create policies and apps using a graphical interface rather than reams of code and teams of developers. This enables insurers to bridge the gap between wanting to launch a new product and actually doing so.
Insurance products and the apps that service them often have to go through significant testing, tweaking and quality assurance processes before they’re able to be unleashed on the world. “Low-code/no-code allows them to say: ‘Well actually, if there’s a new market over here, we want to tap into that, so here’s something – let’s go,’” Connolly says.
Low-code/no-code demolishes some of the silos that can set back real change in the insurance industry and allow it to adapt to changing methodologies. The risks, however, need to be carefully considered: what may be seen as a speedy way to spin up new branches of a business could be viewed as developing ideas without much evidence of their value – or viability.
You’ve probably heard the hype about blockchain’s ability to disrupt every industry under the sun. But for insurance, it’s a true tech innovation that could make a meaningful difference. And that’s the reason why storied insurers with long histories are starting to turn towards blockchain. Twenty of the world’s biggest insurers, including Zurich, Hannover Re and Allianz, are part of B3i, a blockchain working group for the insurance industry.
Up until now, the adoption of blockchain has lacked a true business case, says Connolly. “Why do we need to use blockchain rather than something else?” is the attitude that many insurers have had. But there are now real opportunities for adoption. “It lends itself to insurance beautifully,” Connolly says. “It’s just a clean, organised contract.” Which is exactly what insurers want, with time-stamped entries to ensure that any organisation overseeing it knows exactly what has happened with a customer up to that point.
The use of blockchain can benefit businesses by increasing speed all around. Not having to pore over disparate details of an insurance policy and prior claims – because they’re all accessible on the blockchain – removes delays in assessments and payouts. It also has another benefit: an irrefutable record of a policy and its claims builds trust with customers. “Ultimately, you’re going to benefit from a business perspective,” Connolly says.
Perhaps the hottest topic in the world of insurance, embedded insurance relies on the connectivity of companies through application programming interfaces (APIs). It helps turn insurance from a product into a service. “It will change the course of insurance as we know it as buyers,” Connolly says. “We won’t be going to an insurance company to buy our insurance.”
Instead, customers will go to a shop to buy a particular product, such as a laptop, and an associated insurance cover will be created based on our needs at a hyper-personalised level. Airbnb already embeds host protection insurance, as well as a guest-facing host guarantee, as standard into all the short-term rentals it provides. Similarly Tesla gives tailored auto insurance quotes alongside every purchase of its cars.
Embedded services turn insurance from a bolt-on into something intrinsic, and for insurance companies who manage to lead the market, it is a major flag in the ground for their future. With some estimates forecasting embedded insurance will become a $3trn market by 2023, it’s a must-pursue option. There is one major drawback: those brands insurers have spent years building up could disappear in the embedded world.