FinTech breaks down some of the key technologies behind the digital transformation of the insurance industry, and explores the startups behind their rapid adoption.
As the technological transformation of the global business landscape continues, more and more industries are feeling the pressure to embrace the potential of digital solutions, or be consigned to the scrapheap. In the unending quest for legacy industries to stay agile and avoid disruption, leading edge technologies are fusing with existing business models to create new, tech-driven disciplines. Fintech has been one of the great success stories of this trend, as financial institutions harness the power of artificial intelligence (AI), big data and multi-platform customer experiences (CX) to meet the expectations of their customers.
One subset of the fintech space that’s proven to be ripe for innovation and disruption in the past few years is the insurance industry. As one of the oldest financial businesses, insurance has traditionally been a market that’s slow to adopt, cautious and favours those with deep pockets who already have a seat at the table.
Embracing new avenues for value creation are a new breed of companies. Fusing leading edge technology with a venerable profession (much like the 1980s cult classic Robocop) “insurtech” (insurance is to law enforcement as value-added digitalisation is to cybernetic abs and a big gun) is applying data analytics, AI, machine learning (ML) and a host of other new solutions to the space. This digital transformation has seen a huge diversification of services and streamlining of operations begin to sweep the industry. Like challenger banks a few years ago, insurtech firms are offering “ultra-customised policies, social insurance, and using new streams of data from internet-enabled devices to dynamically price premiums according to observed behavior.”
More and more new applications are being applied and developed in this emerging industry. Here is a run through of some of the key technologies behind the digital transformation of this industry, and an introduction to the startups behind their rapid adoption.
Hello, how may I help you?
Chatbots have been around since before the internet. The very first one, called ELIZA, was built in 1966 by MIT professor Joseph Weizenbaum. It used a pattern matching system to simulate a human conversation and gave a series of scripted responses designed to have it play the role of a therapist. In the 53 years since then, chatbots have grown increasingly sophisticated. Today, they’re a vital part of the way companies interact with their customers, with applications covering everything from content delivery to conversational ecommerce. By 2025, the global chatbot market is expected to reach $1.25bn.
A report released last year by IT services company Cognizant is confident that chatbots are set to be at the core of a digitally transformed insurance sector: “Chatbots are integral to many enterprise initiatives focused on business modernisation and digital customer experience.” Chatbots’ ability to offer a customised experience 24/7 with lower processing time and faster resolution is expected to generate over $8bn in savings globally by 2022. In the new generation of insurtech firms, chatbots are even part of the core value proposition.
Meet Lemonade, perhaps the most well-known poster child for the insurtech revolution. Based in New York, the $2bn startup has exploded across the US market, becoming the top rated provider of renter’s insurance in the country.
“In less than three years, Lemonade has expanded across the US, given back to dozens of charities chosen by our community, and fundamentally changed how a new generation of consumers interacts with insurance,” said Daniel Schreiber, CEO and co-founder, Lemonade. “Looking forward, we aspire to create the 21st century incarnation of the successful insurance company: a loved global brand that can endure for generations; an organisation built on a digital substrate, enabling ever faster and more efficient operations, and ever more delighted consumers.”
Lemonade’s selling point is the level of personalisation and flexibility it can offer its customers. To achieve this, it heavily relies on its app-based chatbots. Powered by AI, these bots can craft personalised insurance policies and quotes for customers right in the Lemonade app, and respond quickly to a variety of customer queries and process claims.
These claims bots are so good that, on December 23, 2016, it set a world record for the fastest processed insurance claim in history, receiving a claim for a $979 coat, checking the claim against the policy, running 18 anti-fraud algorithms and making the payment - all in just three seconds.
Where we’re going we don’t need roads…
From bringing medical supplies to remote villages in Africa to dropping off an ounce of weed to a frat house in San Francisco, drones have become an integral part of the modern logistics pipeline. They’re also finding a less obvious niche in the burgeoning insurtech market.
As the global climate crisis worsens, natural disasters ranging from fire to flash flooding are becoming more and more common. After one of these disasters, it’s important that insurance companies are on the scene quickly to assess the damage and start paying out claims to affected people. This poses a problem if a hurricane has just torn through the nearest airport and the roads are flooded.
Thankfully, drones offer a world of new data collection opportunities and can gain access to areas too remote even for surveyors in helicopters.
One startup uses drones to provide live, on-demand video inspections as part of the claims-handling process. Founded in 2015, DropIn Inc is a Los Angeles-based startup that provides an on-demand, live video platform which enables more precise underwriting risk assessments, speeds claim resolution, enhances damage estimate accuracy, and reduces indemnity and loss adjustment expenses.
Wear and tear
Data collection and analysis is at the heart of how insurtech companies understand risk and determine their clients’ policies. As developments like 5G and the expansion of IoT devices find more and more applications in the workplace, the ability for watches, vehicles, and even clothing, to feed data into a network is redefining the way that insurtechs gather information.
“Health ecosystems are essential for the future success of those operating in the life sector,” affirms a recent report by KPMG. “Wearables are increasingly contributing to this market, and without access to these datasets, insurers will not be able to manage risks or engage with their customers.”
In the US, insurers have begun offering their customers premium discounts in exchange for data from their wearable health monitors. Insurer John Hancock’s policies have gone one stage further, according to KPMG, by requiring fitness tracking data to be submitted. This lends credibility to wearables data as a valid new source for risk assessment, rather than simply a distribution loyalty gimmick.
MākuSafe, an Iowan startup, offers a full solution to insurers and companies to increase data collection and compliance. The company uses a device similar to a Fitbit to capture and measure workplace environmental data and hazards to improve workplace safety and helps insureds and carriers better process workers’ compensation claims. MākuSafe’s platform then collates the data in the cloud, presenting it to insurers in a dashboard.
“We set out with the purpose of trying to solve two problems. We wanted to gather data constantly and in real-time, so we can identify before someone ever gets close to a dangerous exposure. Secondly, we wanted the device to be wearable. The environment in manufacturing facilities is always changing, which is another reason why constant real-time data monitoring is so important. Things like lighting and temperature can vary greatly in the space a few feet. All of those things can impact the health, wellbeing, happiness and safety of a worker,” said MākuSafe CEO and Co-Founder Gabriel Glynn in a recent interview.
Looking to the future
Insurance isn’t the first industry to feel the effects of disruptive technology, and it won’t be the last. However, it is an industry with a high number of large, legacy businesses that are in danger of being disrupted into the history books by a wave of agile, sophisticated, hungry insurtechs. Digital transformation has the ability to streamline processes, expand capabilities, and ensure that companies’ offerings are tailored to the needs of the consumer. It’s time for the whole industry to take a look at the sector-wide transformation all around them and decide whether to be the disruptors or the disrupted.
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