What is Insurtech?

Insurance is a complex and highly regulated business that touches every part of our lives. But as the business evolves, so does technology. Insurtech is a branch of fintech that attempts to combine insurance with emerging technologies.

Insurtech is reinventing the insurance business and disrupting the industry. Insurtech is not just a trendy word to describe a new industry, it’s a disruptive business model that is transforming the way we buy insurance.

Problem with traditional insurance business model?

The conventional insurance business model has run its course. While its time is not yet over but the emergence of insurtech has exposed the weaknesses in the business model.

1- Paperwork

The traditional or conventional insurance business model is cumbersome. The biggest problem with it is the paperwork. Clients are no longer interested in signing tons of paperwork, that contain incomprehensible legal jargon that no one reads.

Clients want efficiency and Insurtech has tried to bring that efficiency by using different technologies to the insurance sector.

2- Lack of personalization

Another problem with the current business model of insurance companies is that they group together policy takers based on their risk profiles. These risk profiles are based on various data points gathered by the insurance companies. The problem with this approach is that each group has individuals with varying risk profiles but since they belong to one group, all of them get to pay the same rate.

For instance, a group may contain individuals with risk profiles ranging from 10% to 20%. Now a person with 10% risk has a lower risk profile than a person with 20% risk. However, since they are both lumped together, both have to pay the same premium.

This is not very efficient but insurance companies stick to this approach because assigning premiums on a case to case basis is not feasible for them. This is where Insurtech comes in.

Insurtech companies use technologies such as big data analysis to gather far more data points from their clients than conventional insurance companies. These additional data points help insurtech companies create more accurate risk profiles, thereby allowing them to create a very personalized insurance plan for each customer.

As a result, insurtech companies have better pricing models as compared to conventional insurance companies.

What can Insurtech do better?

Insurtech companies are companies that have created a new way of solving a problem in the insurance industry. Their innovation and their focus on the customer has made them a category of their own. Some of the Insurtech companies are as diverse as the industry itself.

Insurtech companies are bringing in diverse technologies to revolutionize the insurance industry. Let us take a look at some of these innovative technologies.

Robo Advisors

Conventional insurance companies rely heavily on the ability and efficiency of their brokers to sell insurance policies. This adds extra human resource costs. Many insurtech companies use robo-advisors and chatbots, which are basically bots that use AI and deep learning to collect data points from the client before advising them.

Insurtech companies can provide their customers with chatbots to manage their policies. In fact, some insurtech companies have developed chatbots for their own use cases. These chatbots perform various tasks such as answering queries or refilling your policy etc.

Robo-advisors are changing the way we buy insurance by allowing us to manage our insurance for ourselves. Robo-advisors can pull your data and come up with a personalized plan in a few moments. Unlike their human counterparts, robo-advisors are accessible 24/7.

As the algorithms get better, so will the performance of robo-advisors. The efficiency curve of insurtech firms will therefore simply keep getting better over time. Robo-advisors are becoming very common in the fintech industry. There are a lot of robot investment apps that allow users to invest their savings into various investment options for a profit.

This is not to say that insurance companies will stop using human agents. Human agents bring in a large amount of revenue for the insurtech sector. Robo advisors are much more efficient and much cheaper ways to provide tech solutions to their customers.

Micro – Insurance

Another new concept that is emerging with insurtech is microinsurance. Why limit insurance to life, health, house and car? What if you want to borrow a friends car and need to get insurance for just this instance? What if insurance companies could offer on-demand insurance?

Got a car that you barely use? Why then should you pay insurance for it when you don`t even use the car everyday? In such a situation, a micro-insurance policy that only applies when you drive the car should be a better option for you.

Changing the backend processes

Insurtech is not all about innovating the products and services. It is also playing a key role in changing how insurance companies operate. Currently, insurance companies have very inefficient processes that need to be updated.

For instance, a lot of insurance companies are sitting on valuable piles of data such as claim histories and other client data that can be analyzed for better risk management. But these companies cannot use these data points because they are still operating with legacy technology.

Upgrading to data analysis, cloud and machine learning models will allow even the conventional insurance companies to use the power of data to become more efficient, thus being able to provide better products and better customer service to their clients.

The future of the insurance industry?

These new technologies are reducing the cost of insurance and providing a much more personalized customer experience than conventional insurance companies. As the technology continues to grow, insurtech companies can provide better value for money and cheaper premiums.

The future of insurtech looks bright as these technologies continue to develop over time. We will continue to see insurtech companies bring in more advanced technologies that will shape the insurance industry into what it should have been all this time.