Blog Description

Insurance Industry Reimagined with Major Technological Trends

BFSI | Apr, 2023

The insurance sector is an important component of the global economy, accounting for nearly 7% of the overall share. In 2021, the volume of insurance premiums rose above USD6.8 trillion, which is more than the GDP of Spain, Italy, and France combined. Besides contributing significantly to the economy, the insurance industry plays an essential social and economic role of covering personal and business risks. Over the past few years, the insurance industry has demonstrated outstanding flexibility and resilience in overcoming macroeconomic and geopolitical obstacles such as the pandemic or ongoing economic fallout from Russia-Ukraine war. Now, the spiking interest rates, increasing inflation, fluctuations in currency valuations and growing competition from even noninsurance entities such as e-tailers and manufacturers have put the insurance industry in a period of flux. In addition, as customer’s needs are changing, insurance companies are moving swiftly to satisfy them with new value propositions and innovative solutions.

Customer Experience Takes the Centre Stage

Although the insurance sector has always been customer-focused, the development of digital technology has given consumers more power than ever. Customers can now evaluate products, shop around for the best deals, and find the best insurer for their requirements with just a few clicks. In response, insurers are putting more of an emphasis on offering a superior customer experience. Innovative start-ups and digital-first insurers are developing and offering new products and services much more quickly than established insurers. Due to the growing realization that innovation is necessary, leaders and specialists in the insurance industry have begun to change their strategies. Hence, the approach of insurance companies is transitioning from a traditional and conservative to digital and innovation-driven.

The goal of the insurers is to increase innovation, improve the customer and employee experience, increase agility, and find new ways to use current technologies to solve long-standing insurance issues like risk-assessment claim processing and policy sales. As a result, many insurers are currently updating their outdated systems and apps to make them more future proof. Insurance companies are positioning their value proposition to the tech-savvy audiences, knowing them holistically and crafting services to match their expectations and needs appropriately.

Over the years, an intelligent self-service portal has gradually gained prominence over human support in the insurance sector. One of the reasons for this shift is that customers now prefer to handle any policy- or claim-related problems on their own using an insurance self-service portal rather than waiting to speak with a live agent. Customers have also become more inclined to use the online channel in preference to traditional face-to-face communication and help delivery since the pandemic interruption. While giving consumers more power and control would significantly enhance the customer experience, businesses would also profit from this move by reducing the cost of customer acquisition, raising insurance agent’s productivity, boosting customer retention, speeding up the processing of claims, and securing brand value and position. Insurance companies would need to be technologically advanced enough to develop platform-neutral apps and portals to accommodate customer requests, though, in order to expand.

Hyper-Personalization Drives Customer Growth in Insurance

Customers are expecting a certain level of personalization when it comes to filing claims or applying for new insurance coverage. Leveraging data-driven conversations powered by AI, insurance companies learn what customers want and need. Today, insurers are able to use modern, cloud-based solutions to personalize interactions across the claims process, which help in ultimately enhancing the customer experience as well as build trust for the consumers. Earlier filing an insurance claim used to be a painstaking experience. With hyper-personalization, giving employees the necessary information to process and file claims makes the whole process less stressful and leaves less room for error on the business side.

One of the biggest US insurance companies, Nationwide, predicts that nearly 70% of freshly issued car policies will be based on usage or behavior of the driver. In order to keep up with this trend, insurers will need to use sophisticated analytical models and machine learning algorithms to analyze the massive amounts of data produced by connected vehicles and smartphone sensors in real time. They will be able to design customized insurance products that will cater to each customer as a result. Telematics will also give insurance providers the chance to provide customer with specialized add-on services and other pertinent information. Another insurtech startup, Zego offers commercial car insurance to corporate clients and the pricing model is based on the usage.

With the introduction of biosensors, intelligent machines, and deep-learning algorithms, the insurance industry is destined to undergo a significant change from "pay for damage" to "prevent damage." The integration of IoT and AI will render the current method of claim handling obsolete and pave the way for claim process automation, even though this change in the landscape might appear gradual and take place in the background. As a result, insurance companies must develop strategies and incorporate current insurance industry trends to get the company ready for the massive influx of data from linked devices.

According to TechSci Research report on “Insurance Market - Global Industry Size, Share, Trends, Opportunity, and Forecast, 2018-2028F Segmented By Insurance Type (Life Insurance, Property and Casualty Insurance, Health Insurance, Others (Medical Insurance, Travel, etc.), By Provider (Insurance Companies, Insurance Agents/Brokers, and Others (Insurtech Companies, Third Party, etc.)), By Premium Type (Regular Premium, Single Premium), By Region, Competition”, the global insurance market is projected to register significant growth during the forecast period on account of rising demand for health and life insurance. Besides, the growing need for cyber insurance and emergence of insurtechs are fueling the growth of global insurance market.

Rise of Insurtech Companies

Emerging technologies like telematics, AI, machine learning, and automation have completely changed the insurance value chain and are still developing new and better omnichannel experiences for consumers. Insurtechs are leading forces of technology-driven innovation. Insurtech companies blend tech with a deep knowledge of the insurance sector to remove barriers to enrollment for insurance such as complicated coverage options, convoluted eligibility requirements and fine print to sort through. In 2021, the Venture capital investment in insurtechs surpassed USD14 billion, reaching 644 deals. Insurtech are enjoying a steady rise to power, offering tailored plan options to what each customer needs and streamlining their journey from inquiry to enrollment. For instance, US-based Insurtech company, GoHealth provides an advanced platform that relies on machine learning algorithms to match consumer plans that meet their unique needs. Besides, the incumbent offers licensed agents and telecare support to consumers before and after the enrollment stage for better understanding of their insurance plan.

As insurtech providers are looking to embed insurance products directly into shoppers’ purchasing experience, incumbents are keen to leverage their size and stay competitive in the insurance industry. The best way to keep customers at the center and provide them with the best experience is the collaboration between the traditional insurers and insurtech providers. In the ever-evolving era of digitalization, incumbents have the chance to collaborate with new partners to address customer pain points and offer more practical and effective options for consumers to protect themselves.

Application of Technologies in Insurance Sector

  • Insurance Tracking Devices in Cars

If someone is on a usage-based insurance (UBI) program, it is likely that the insurance provider is tracking them through insurance tracking devices. Insurance tracking/monitoring devices collect data from your car's computer and send it to the insurance provider. The gadgets would not harm your vehicle or alter how you run it. The data collected through the device might include information about acceleration, braking habits, speed, time of day, distracted driving habits, crash avoidance alerts, Wi-Fi usage, sharp turns, etc. The insurance company determines whether you are a good driver or not using the retrieved information. For instance, if a policy holder takes sharp turns, and uses his/her cellphone frequently while driving then they are at a much higher risk of crash. When it’s time for policy renewal, insurer review your driving data and determine whether you qualify for the safe driver’s program. In case the insurer thinks that you are a risky driver, they could increase your premiums, or you might even get booted from the program.

  • Automation with RPA and Machine Learning

Tedious tasks, including paperwork, handwritten notices, follow-ups, and underwriting, take up a lot of time and affect the efficiency of employees. Robotic Process Automation (RPA) enables businesses to cut costs associated with regular work and re-allocate some full-time staff to more productive tasks. For instance, Fukoku Mutual Life Insurance adopted AI for full system integration, which replaced 34 employees at the company. The organization predicts to save about USD1.25 million in the first year of AI use for internal workflow. The scope of automation covers everything from preliminary analysis of car damage claims to data entry, claim settlement to automated payments, and more.

All financial organizations need to process and compile thousands of papers and archives every day. However, it is not the ideal method for processing, storing, and exchanging data. However, if the documents are digitalized, processed, and stored in the cloud, they can be instantly reviewed and rejected in the event of inconsistent information or errors of files. This enables insurance staff to only deal with documents that contain consistent and accurate information.

Moreover, AI insurance software also changes the way claims are processed. In any insurance company, the claim management begins with the filing of claims and concludes with the payment to the insured party. The use of claim management software reduces manual processes, automates information exchange between insurance and healthcare provider systems, and human-to-human interaction. Additionally, the software requires less time for clients to register, and it handles claims more efficiently.

  • Personalized Insurance Pricing with IoT and Social Media

The traditional approach to risk evaluation relies on impersonalized datasets. However, endpoint gadgets and social media can now offer more personal information. While customers benefit from more affordable or superior coverage and highly customized services, businesses benefit from more accurate risk assessments, stable margins, and happy customers. Customers are willing to share confidential information in exchange for more personalized financial and cheaper risk coverage. Connected devices and wearables provide deep insights into the customer's physical state, including blood pressure, temperature, and pulse. Facebook, Twitter, and other social media statistics are also helpful in personalizing experiences. With the use of machine learning or other predictive analytics methods, it can reveal customer risk tolerance. All of this data is additionally accessible in real-time, which offers insurance firms additional value.

  • Blockchain: The Next Stage of Insurance Digitization

Today, major use cases of blockchain are focused on cost-reduction efforts. Blockchain technology is one of the first things insurance firms are thinking about using to automate the payment of claims. The novel technology can automate claims processes by confirming coverage between reinsurers and businesses. Additionally, automating payments for cases between parties can cut insurance companies' administrative expenses. For instance, insurance policies placed on a blockchain as smart contracts can improve Property and Casualty (P&C) insurance efficiency and save insurers over USD200 billion a year in operating costs. In United States alone, fraudulent claims cost more than USD40 billion. The standard methods can sometimes fail to recognize fraud. However, blockchain ensures that all executed transactions are permanent and thus modify the data breaches.

Besides, another potential use case of blockchain technology in the insurance sector can be the transmission of any kind of digital evidence for underwriting, including electronic health records (EHR). Digital evidence can be incorporated into underwriting, which would lead to changes in other areas of pricing and product development. In the near future, our industry will appear very different as a result of the automation of insurance processes brought on by the Internet of Things (IoT) and Artificial Intelligence (AI).

The current reinsurance system is highly inefficient, complex, and lengthy process due to information silos. Generally, insurance companies engage multiple reinsurers for the same risk, which require data to be shared among many companies to settle claims. If the insurer and reinsurer share a blockchain ledger, the data relating to policy premiums and losses can exist on both of their systems, accelerating the process and eliminating the need for reconciliation. Blockchain can not only speed up the process through automated data/information but also help the reinsurance industry save up to USD10 billion by improving operational efficiency. Besides, reinsurers can automate claims processing and settlement, which saves time and money.

Sharing Economy and Insurance

The sharing or gig economy is becoming a larger part of the economy with the rise of services such as ridesharing (Uber, Lyft, BlaBla Car) and homesharing like AirBnB among consumers. However, the nature of these services is creating a unique challenge to underwriting. In the case of ride sharing, the commercial coverage is based on the driver having certain qualifications and experience, and the vehicle being maintained to a certain standard on a periodic basis. However, ridesharing typically involves drivers who are licensed, but not authorized to drive taxis and their personal vehicles as a result, some insurers are addressing the unique nature of ride sharing.

For instance, Uber offers separate coverages based on the circumstances. Low coverage is offered to the driver when he has logged onto the system and is waiting for a pickup and high coverage is offered for physical damage to the driver’s vehicle while it is being used for the ride sharing services. In case of peer-to-peer home sharing, AirBnB offer additional coverage as a homeowner policy do not cover liabilities caused by a renter. Hence, commercial insurance may be required, particularly to cover liability from guest damage. AirBnB includes a “Host Protection Insurance”, which is designed to cover the liability associated with a peer-to-peer rental but the insurance doesn’t cover intentional acts.

Millennials, one of the largest age cohorts entering their highest consumption period, prefer digital solutions and dissatisfaction to conventional insurance solutions. This has prompted insurers to review their approach to distribution and claim management. Millennials are ready to share their personal experiences/reviews and other information quite freely with shared service providers while they are reluctant to do the same with established business processes such as insurance. Hence, insurers may have to adjust their business processes in accordance with consumer behavior.

Changing Travel Insurance Dynamics

Travel is increasingly becoming a part of academic, business, and personal life as the need for mobility grows. Travel insurance has become one of the top products generating “non-air” ancillary revenue, followed by car rental and hotel booking services. Many countries are adding travel health insurance as a part of visa requirements. Besides, the risks pertaining to trip cancellations, medical cost incurrence and rising quarantine costs are higher than ever before. The 21st century has seen a noticeable technological advancement in travel insurance.

Insurance providers are implementing a variety of cutting-edge technologies, including blockchain, machine learning, artificial intelligence (AI), cloud computing, the internet of things (IoT), advanced analytics, telematics, and GPS to enhance customer service experiences. Robotic process automation (RPA) allows one to respond to travelers instantly. Given the wealth of information they have their customer’s demographics and travel habits, airlines have an advantage when tailoring travel insurance policies for them. Young travelers are more willing to spend on travel insurance than senior travelers. Trip cancellation insurance reimburses the prepaid and non-refundable costs for trip in the event of unforeseen circumstances. In 2021, 95% of travel insurance policies for trip included trip cancellation coverage. Travel medical insurance provides coverage even if you are taking an international trip.

Recently, Trip Money, the fintech arm of Indian travel website MakeMyTrip, collaborated with insurtech Cover Genius to launch a ‘no question asked’ trip insurance for Indian holidaymakers. In addition, the embedded insurance offers ‘Cancel for any Reason (CFAR)’ to remove the pain points associated with claims on policies that are otherwise applicable for restricted reasons only.

According to TechSci Research report on “Travel Insurance Market – Global Industry Size, Share, Trends, Opportunity, and Forecast, 2018-2028F Segmented By Coverage Type (Single Trip Travel Insurance, Annual Multi-trip Travel Insurance, Long Stay Travel Insurance), By Provider (Banks, Insurance Companies, Insurance Intermediaries, Others (Insurance Aggregators, etc.)), By End User (Education Travelers, Business Travelers, Family Travelers, Others (Senior Citizens, etc.), By Region, Competition”, the global travel insurance market is anticipated to grow at a formidable rate during the forecast period. The growth can be accredited to the easy access to online travel reservations and rising corporate travel.

Rising Interest for Insurance among Young People

Factors driving the adoption of individual insurance include frequent job changes, flourishing gig economy, with a large segment of youth opting for independent professions rather than full-time corporate jobs or government jobs. Besides, rising healthcare costs and growing incidences of lifestyle disorders among youth drive the adoption of insurance among youth. Today’s youth are no longer just interested in health or life insurance but also reflect a buying trend across a variety of segments, be it travel, pet insurance, smartphone insurance, or gadgets insurance. Insurtech start-ups are beginning to address the rising need of youth by offering them aggregator platforms while providing them customized and bite-sized insurance. To entice and keep top talent, employers are also stepping up and reforming their health benefits programs. On the other hand, insurers and third-party administrators focus on the three key elements that young people seek in healthcare: convenience, a personalized experience, and speed of settlement.

Youth today are more sensitive to and conscious of issues surrounding mental health. The pressures of contemporary living have repeatedly shown to have negative effects on both Millennials and Zoomers. They are not only knowledgeable about mental health, but they also are reluctant to ask for assistance when they need it. The treatment of illnesses like depression, anxiety, and other mental health conditions is a top concern for young people.

Rise of Embedded Insurance

As consumers are warming to the idea of increased convenience and simplicity, a number of major consumer brands, Tesla to IKEA to Uber are beginning to embed insurance in their offerings. Embedded insurance allows consumersto receive a customized insurance offering, which suits their requirements without the need to shop for insurance deals. This presents an opportunity for a whole new audience without marketing efforts or offering additional customer support. However, integration between insurer and third-party systems is integral for embedded insurance to avoid delays and reduce the risk of any potential data breach. Hence, insurers must aim to become digital native to utilize the latest innovations and technologies such as machine learning and artificial intelligence to improve customer service, reduce frauds and improve underwriting.

Currently, the embedded insurance market is focused on consumer goods, but this could extend to business processes such as in logistics and warehousing in the near future. For businesses, embedded insurance could pave a way for organizations to scale their insurance needs while keeping the costs low. For instance, startup offers a digital distribution solution for insurance companies and brokers to build customer-centric products, a key lever to achieve success with embedded insurance products. The startup makes the data available to both insurer and third-party platform, which allows partners to improve their acquisition cost over time. Another startup Simplesurance, one of the leading insurtech players, has created a platform for simple access to insurance integrating traditional insurance industries with digital business. In 2021, Simplesurance collaborated with N26 to launch on-demand insurance products for home insurance, pet insurance, bike insurance, etc.

According to TechSci Research report on “United Kingdom Health Insurance Market By Type of Insurance Provider (Public v/s Private), By Type of Coverage (Individual v/s Family), By Mode of Purchase (Insurance Companies, Insurance Agents/Brokers, and Others (Insurtech Companies, Third Party, etc.)), By Premium Type (Regular Premium, Single Premium), By End Users (Minors, Adults, Senior Citizens)), By Region, Competition Forecast & Opportunities, 2018-2028F”, the United Kingdom health insurance market is anticipated to grow at a significant rate. The market growth can be attributed to the rising private medical insurance premiums and improved government insurance services.

Cybersecurity in Insurance Takes the Front Seat

In past few years, the number of cyber-attacks has grown exponentially, given that insurance companies are migrating towards digital channels. According to a report released by Black Kite (a cyber ratings platform) in 2022, 82% of the largest insurance companies are susceptible to ransomware attacks from cyber criminals. Cyber criminals are aware that insurers have large amounts of personal information about their policy holders such as customer credit card data and payment data which they can perpetrate fraud for financial gains. Due to the nature of the insurance sector, enormous amounts of structured and unstructured data must be gathered, processed, and analyzed. Highly organized and formatted structured data makes it simple to search for specific information in relational databases. It is both machine-readable and programmatically sound. Name, address, vehicle details, medical history, dates, and claim history are a few examples of structured data that insurers employ. Unstructured data, on the other hand, has a predetermined framework or organization, making it more challenging to use and protect.

Attacks on insurance firms could lead to significant tangible damages such as fines, legal fees, fraud monitoring costs, etc. Hence, most insurance companies are willing to pay a ransom to retrieve their data and prevent service outages, making the industry more profitable for cyber criminals. The challenges related to cybersecurity can become more complex as insurers are embracing big data and advanced analytics to collect and handle vast amounts of data as they are under pressure to embrace innovation and modernize their systems and infrastructure. Many insurance companies, especially those that deal with significant volumes of unstructured data, find that the traditional security methods and technology used to combat cyberattacks are insufficient. The data analysis personnel at insurance companies frequently lack the necessary knowledge to adequately address possible hazards that can result from the use of various types of data.

Leaving data exposed on the cloud due to unclear policy can undermine any sophisticated protection technology. Hence, insurance companies are investing a lot in implementing security tools and processes for ensuring that the customers’ data is safe. Insurance firms can greatly benefit from the use of artificial intelligence (AI) and machine learning (ML) to protect against malware, ransomware, and advanced persistent threats. (APT). These new technologies are particularly suited to solutions that can identify any departure from an anticipated or predefined pattern in data behaviour since they can swiftly analyze vast amounts of data. They can be used to keep an eye on data operations and quickly respond to intrusions. Access restrictions, data behavior, the encryption of massive data volumes, and the prevention of data leaks must all be the main components of technical cybersecurity solutions for the insurance business. Big Data security solutions must provide in-the-moment analysis and monitoring, as well as be built to prevent performance degradation, which slows down data processing. Besides making improvements in technology, insurance companies are upgrading their policies to offer adequate protection against cyberattacks.

2023 Major Insurance Trends

Given the numerous challenges the industry is facing, ambitious insurers will continue to place a high priority on digital transformation in 2023. Innovation and growth will continue to be driven by sustainability, equity, and transparency. By enabling employee-centric transformation, automation will free up human resources to concentrate on the customer. Insurance companies will transition from price-competitive strategies to value-driving measures as a result of ongoing rivalry from both inside and beyond the sector.

  • Underwriting Transformation

Within the insurance industry, underwriting has already undergone the most significant change, and this trend is expected to continue through 2023 and beyond. Fully automated or data-driven initiatives that streamline the process are being driven by new technology. Life insurance providers are unable to offer a quick and self-service agent/customer experience due to lengthy underwriting procedures.

  • Growth in Sources of Insurtech Data

There will be more opportunities for data sources and better risk assessments as the IoT develops and urban areas use increasingly intelligent methods to upgrade existing infrastructure. Wearable technologies and incentive-driven programs to improve health and reduce premiums in the health and life insurance industries will continue to be streamlined as real-time data sharpens the cost of cover and offers more insightful information.

  • Emergence of More Insurtechs

As existing insurers feel more pressure to form collaborations within the digital ecosystems, more insurtechs are expected to enter the insurance market. They will be able to do this while addressing their own technological and innovative issues, allowing scaling chances for entrants who are innovative. Investors are attracted to the growth prospects of insurtechs, their ability to scale into new markets.

  • IoT and Telematics to Keep Accelerating Digital Transformation

Increased frequency and amount of data collected on consumer behavior and patterns allow insurers to get a clear picture of risks associated with specific consumers. Using this data, insurers can design policies that meet the requirements of these customers. Besides, the collected data can help prevent frauds and provide them notifications about the occurred accidents, which help in reduce claims processing time and mitigate losses.

According to TechSci Research report on “United States Life Insurance Market, By Type of Insurance Provider (Public Vs Private), By Premium Type (Regular Vs Single), By Type of Coverage (Individual, Group), By Term of Coverage (Term Vs Whole), By Mode of Purchase (Insurance Agents/Brokers, Insurance Companies, Others (Insurtech Companies, Third Party, etc.)), By End User (Minors, Adults, Senior Citizens), By Region, By Company, Forecast & Opportunities, 2018-2028F”, the United States life insurance market is expected to witness robust growth during the forecast period. The growth can be attributed to the declining life expectancy in the country and increasing awareness among consumers about the benefits of life insurance.

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