How insurtech could transform the insurance industry

By Engel Schmidl

The term “insurtech” has been around since at least 2010, but its reach and influence have accelerated in the past few years.

At its most basic, insurtech – a portmanteau of insurance technology – is about how technology is transforming the insurance industry.

Like fintech, insurtech is a broad term that can refer to both the processes and products related to insurance. It is also commonly used to talk about disruptive start-ups and products within the insurance industry.

The rise of insurtech has occurred hand in hand with the growth of artificial intelligence (AI) technologies and the increased data-crunching power now accessible to commercial enterprises.

As The Economist noted in 2017, “data is the new oil”. The insurance industry understands this well, so insurtech and data utilisation are key strategic growth concepts.

According to Statista, the insurtech sector’s investment share dropped significantly in 2020, but analysts view this as a temporary pandemic-related hiccup. Investment measured by the number of deals recorded has been steadily increasing over the decade, peaking in 2018, when 466 deals were recorded globally.

A Deloitte report on the effect of COVID-19 on the insurtech sector notes that digital transformation is now an urgent priority, and this trend will ensure continued strong insurtech investment.

“The pandemic has prompted many insurers to accelerate their digital transformation efforts and seek insurtechs that can help accelerate virtual interactions in sales and claims, as well as reduce expenses,” the report says.

Maximising the value chain

Perry Abbott CPA, CEO of Friendsurance Australia and member of the CPA Australia Digital Transformation Centre of Excellence, says insurtech is about using technology to make insurance more accessible and affordable.

“It’s about looking at every part of the value chain in the insurance industry,” says Abbott.

“It’s combining a new technology with a part of that value chain to create something different, which can be new insurance products or a new way of doing something inside an insurance company.”

Abbott says that insurtech is continually evolving with technology.

“The initial focus was online and mobile-enabled. It was about providing consumers with a more accessible experience. In the past few years, we’ve seen technologies like AI come into play and using data to come up with more efficient and cost-effective solutions.”

Insurance companies have always relied on data to undertake the basic functions of underwriting risk and assessing claims.

Abbott says new technologies have exponentially increased the amount of data available and its quality, putting insurers in a position to find new efficiencies and create new products.

 

"You're seeing more embedded insurance products. An example of that might be Tesla car insurance or insurance embedded within accounting software packages that look at new business metrics and adjust accordingly." 

 

He cites the example of devices connected through the Internet of Things (IoT) and providing home and car insurers with instant data, with companies like Tesla, Hippo and Lemonade leading the way in the US.

“You’re seeing more embedded insurance products,” he says.

“An example of that might be Tesla car insurance or insurance embedded within accounting software packages that look at new business metrics and adjust accordingly.”

Tesla is already taking advantage of connectivity and embedded devices to pitch its new insurance product to car owners.

By accessing its proprietary data, Tesla claims it can provide a far better deal than traditional car insurers to the drivers of its vehicles.

On launching Tesla insurance, CEO Elon Musk said the company had a “much better feedback loop” than traditional insurers.

“Obviously, somebody does not have to choose our insurance. But I think a lot of people will. It’s going to cost less and be better, so why wouldn’t you?”, Musk said.

Big data brings micro opportunities

Massive advances in AI point the way forward to even greater disruptions to the insurance industry, says Vincent Liew CPA, senior finance manager with insurtech firm Igloo, based in Singapore.

While volumes of data have become available to insurers in recent years, Liew says the processing power of AI is now catching up to the scale of data gathering.

He says insurers are getting better at crunching, slicing and dicing the data to dig deeper into the numbers and provide products better customised to individual policyholders.

“The biggest difference between the incumbent traditional insurers and the insurtech players is not the technology, but the product,” he says.

This includes more niche and micro coverage, allowing insurers to move into new markets while also extending the benefits of insurance to those who could not previously afford it.

Liew says this is where insurtech start-ups have had the biggest impact.

“With micro insurance, the premium goes to 70 cents to the dollar, whereas for traditional insurers, it’s not profitable to service at such a premium because of the capital costs. But insurtech is creating a new model for this kind of micro-insurance. Because you underwrite such a small premium, your risk exposure is minimised, too.”

Liew says that, in South-East Asian markets, insurtech start-ups are providing coverage for low-cost, high-frequency consumers and small business activities.

He says insurtech products are complementary, providing coverage where it was not previously feasible or profitable, rather than creating head-on competition with the big traditional insurers, which in many cases underwrite micro products.

Tech drives insurtech

Insurtech will continue to expand its reach alongside advances in AI, IoT, wearable devices and nanotechnologies.

With more data and greater computing power, both traditional insurers and insurtech players will customise coverage to incorporate differing consumer needs and extended data points.

From both product and process perspectives, insurtech is transforming the insurance industry.