IT Modernization in Insurance: Ways to Transformation
About $7.1 billion investment was made in the global insurtech projects in the first half of this year as stats suggest. Insurtech is becoming a sustainable trend: such funding demonstrates an enviable consistency with $16.5 billion invested in 2020 and $14.1 billion in 2019. The insurance industry is clearly overcoming the inertia of the past.
Insurance happens to be one of the most transformation-resistant industries for various reasons. Similar to banking, insurance is a very old service in terms of social life. Old things are hulking and unresponsive usually, but the Insurtech term has appeared to reflect the ongoing digital disruption in insurance.
IT modernization helps insurers address their routines from another angle. Insurance is becoming more agile and customer-centric. It is worth knowing the way various disruptive technologies transform the insurance industry into insurtech these days.
What is Insurtech?
Insurtech can be defined as a trend of augmenting traditional insurance services with disruptive digital techs such as cloud computing, artificial intelligence, IoT, blockchain, etc.
Everyone knows that any digital technology is based on software. However, not every kind of software used by insurance companies results in true insurance disruption. The ordinary Windows-based desktops, allowing traditional insurers to print paper docs and send emails, seem to have almost nothing to do with Insurtech. They are just scratching the surface of the trend at best.
On the other hand, those technologies capable of providing fundamental changes to core insurance systems deserve to be called disruptive insurtech drivers. They provide a means to develop new insurance products, reduce costs, improve security, and enhance customer engagement.
Reinventing the core of insurance. What does the future of insurance look like?
The so-called “Big Tech” players can deliver a hint at what the future of insurance is to look like. Amazon has recently announced a deal with the Indian motor insurance startup Asco to fund an insurtech solution allowing car owners to get insurance policies in a couple of minutes with automatically calculated tariffs. All policy-related notifications will be stored on the techno giant’s cloud platform. This eCommerce-style service backed by Amazon Pay India can reduce dealership commissions and bring scale to the sector.
Such a striking example of insurance disruption is worth dissecting with a simple thought experiment to recognize both the technologies that can be applied to the solution and the core benefits resulting from the digital impact.
No time-consuming paperwork, no human-factor errors. This is what cloud-based self-managing insurance policies can represent to customers. Instant access to the cloud-based insurance software platform via smartphones along with AI-enabled chatbots for customer support can accelerate underwriting and enhance customer satisfaction. Both the improved operational efficiency and increased turnover can be rightfully expected.
Machine learning algorithms applied to insurtech solutions can significantly facilitate processing customers’ data to exempt insurance companies from manual customer authentication. Since insurance industry software is data-driven, the Big Data techs are critical they can develop a highly personalized approach to each customer. Blockchain, in its turn, provides data security with cryptographic encryption. Personalization improves retention rates in any sector, and insurtech is no exception.
Online cashless payment services such as Amazon Pay, Apple Pay, Google Pay, and the like remove payment constraints from the insurance industry. The instantaneous reception of indemnity when an insurance case can be proven by IoT devices (or even wearables) allows for the building of insurance systems with unprecedented scalability.
Insurance-as-a-Service implies that software solutions for the insurance industry should be as easy-to-use and interactive as social media or, for instance, popular messengers. Smartphone users (billions of people in today’s world) would hardly be against having easily adjustable and always available insurance policies in their pockets. On the other hand, insurance companies capable of applying predictive analytics to the behavior of their customers can count on the successful promotions of new insurance products through various online channels.
How IT is changing the game for the insurance industry
As we see, even a single use case can reflect a general scenario of how digital trends are going to disrupt the insurance industry in the foreseeable future. Let’s take a closer look at the most promising techs for insurance.
According to the European Insurance and Occupational Pensions Authority (EIOPA), Big Data delivers much larger and detailed datasets to insurance companies that face certain risks while issuing individual insurance policies since the traditional demographic surveys are not able to represent sufficient knowledge about the customers any longer. This is about the customers’ behavior and lifestyle that become clear with the data extracted from social media and telematics.
Another risk-mitigating factor belongs to big data health insurance. The British insurtech company Vitality offers bonuses to its customers who provide their health data collected via Apple Watches when they do their activities.
Big data and insurance form a game-winning combination for insurtech that benefits from the more precise recognition of insurance cases provided by more granulated datasets.
Internet of Things (IoT)
Markets & Markets predicts the global IoT insurance market capitalization is to reach about $43 billion by 2022. People are not against sharing data from their IoT devices with insurance providers to gain more from insurance policies. Smart homes, smart cars, smart factories, as well as numerous personal wearables can create a standalone insurance internet of things. The always-connected devices help exclude human-factor errors from the evaluation of insurance cases to bring more value to insurtech services.
Robotic Process Automation (RPA)
AI-driven neural networks are successfully used by fintech companies that stay close to the insurtech sector by the type of activity. RPA algorithms significantly improve both the speed and accuracy of data processing. Robotic process automation in life insurance can include various implementations beginning with AI-powered chatbots for 24/7 customer support and up to claims registration and making automated verdicts on insurance cases with data-driven insurtech software. Automated decision-making tools capable of evaluating insurance contracts’ profitability are gaining popularity among RPA use cases in insurance.
Artificial Intelligence (AI)
Personalized insurance pricing, chatbots, automated fraud detection, document processing, as well as many other insurance routines are slowly but steadily migrating from manual operations to artificial intelligence insurance. WorkFusion, for instance, promises to automate 89% of appeals with 99% accuracy while using AI in the insurance industry.
Another example belongs to the AI car insurance technology: Tractable offers an AI-powered image recognition system for real-time estimation of repair costs after car accidents.
The very essence of distributed ledger technologies can reveal how to use blockchain in insurance. This technology enhances cybersecurity with automatically executed smart insurance contracts that appear unhackable and fraud-resistant. A mutually trusted version of the truth without a need for manual verifications is what blockchain provides for Insurtech, according to PwC, which has recognized a $5 billion opportunity in blockchain for insurance.
However disruption-resistant traditional insurers can be, the zeitgeist is changing insurance from analog to digital. AI, Big Data, Blockchain, RPA, and other technologies are disrupting the insurance industry to make it correspond to software-driven workflows.
Enhanced security, improved operational efficiency, customer-centric agility, and data-driven scalability are the properties that distinguish insurtech from the obsolete paper-backed insurance of the past century.