As technology continues to reshape business models and society as a whole, it’s clear that some of our oldest financial services are no longer fit for purpose.
One of these is insurance, which continues to be based around selling standard policies rather than meeting the real (and fast-changing) needs of customers.
Data exchange is the driving force behind disruption in the insurance sector. Archaic manual and semi-manual processes, such as underwriting, claims validation and settlement, can be streamlined and accelerated significantly – especially when technologies like artificial intelligence, machine learning, the Internet of Things and real-time payments are involved.
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As a result, insurtech has emerged as a disruptive force that will have the same impact on the insurance industry as fintech has had on retail banks. And as with fintechs, insurtechs are winning by understanding where the gaps are in the generic service provided by traditional vendors that have been slow to change.
Targeting the gig economy
One example is the growth of the gig economy, in which self-employed workers are free to work the hours they prefer. Such workers need protection, whether that’s for the equipment they use for their job or to guard against lost income during extended sickness.
Food delivery drivers are a case in point. Newer insurance providers like Zego offer policies that enable drivers to invoke protection on a pay-as-you-go basis, so they are only paying for insurance when out on the road.
Better data-driven decisions
Mobile access is key to the success of insurtech, not just for flexible workers out on the road, but for younger generations of consumers who expect smart technology, a personalized service and an ecosystem that links services together as a given, not a ‘nice to have’.
The new insurtechs remove human intervention and take processes that used to be carried out by multiple humans on a semi-manual basis, resulting in decisions being made almost instantaneously based on a blend of in-house and public data sources.
Innovative new business models driven by smart technology are already emerging, including honcho, which enables participating insurers to bid for consumers’ motor cover in a reverse auction that lasts just 30 seconds. Motorists simply scan their driving license and details of the cover they are looking for and wait for the ‘honchometer’ to crunch the numbers and identify the bid that best suits their needs.
Potential for rapid growth
“There is huge potential for future growth by insurtechs,” says Alex Barr, Director of Fintech at Currencycloud. “For example, data analytics and machine learning will enable them to provide cover for specific incidents and micro-events without insisting on expensive annual policies. And open application programming interfaces mean insurtech platforms are easy to plug into IT systems used by a food delivery company or a travel agency, so cover can be added on a highly flexible basis.”
Another area of growth, as has also been the case with fintechs, is to provide apps that enable users to view all of their insurance products in one place. UK insurtech Brolly, for example, not only provides this capability, but also uses AI to scan the insurance market for better deals and enables users to cover everything from musical instruments to drones.
If the retail banking sector is anything to go by, traditional insurers will wake up to the challenges created by disruptors, learn from them and go on to collaborate with them within their wider ecosystems. In the meantime, businesses and consumers operating with models built in the 2010s want insurance that suits their needs today, not processes developed in the previous century.