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Like many other industries, insurance is also facing digital disruption and is going through massive readjustment. Traditional insurance companies are facing increasing competition from new players in the market such as insurance technology companies (insurtech). Increasing popularity of global positioning system (GPS), data analytics, artificial intelligence (AI), Internet of Thing (IoT), blockchain, mobile phones, and telematics are disrupting the way insurance companies have been operating.
In a short span of time, insurtech startups have already changed the face of the insurance industry. They are providing customers with reduced costs, improved efficiency, and expanded insurability through new measuring and controlling tools and more accurate price risk. Insurance companies that don’t adopt continuous digital innovation and fail to cater to the changing expectations of consumers will be left behind.
Trend 1: Customer first
The insurance industry has typically witnessed low customer engagement and slow tech adoption. However, customer expectations are shifting fast, particularly among millennials, who expect new services, innovative features, and an on-demand user experience. Traditional insurance companies are increasingly feeling pressure and competition from insurance technology companies.
According to The World Insurance report, digital interactions are valued by customers, especially tech-savvy millennials, who ranked the computer as the most important touchpoint for their insurance transactions. It thus comes to no surprise that nearly one third of customers relied on insurtech solutions, either exclusively or in combination with established insurance companies’ products.
The increase in global spending on insurtech indicates a heightened awareness towards innovation in the insurance industry. According to McKinsey & CBInsights report, in 2017 total funding in insurtech was $2.3 billion, which is 36% higher than in 2016 ($1.7 billion). 2018 will follow a similar trend, demonstrating that technology-driven innovation remains a core focus area for the insurance industry.
Trend 2: Data analytics → Internet of Things → Artificial intelligence → More to come?
Big data and analytics technology is driving the insurech industry. The technologies can be used to improve the insurance industry’s offering, to reduce its underwriting and distribution costs, to create new revenue streams, and to provide its customers with data-driven, customized solutions.
More than 85% of executives in the insurance industry agreed that delivering customized products and services has the highest impact on both the ability to generate new revenue streams and boost customer engagement.
As more and more people around the world have access to internet through their devices (such as computer, smartphone, tablet, car, and smart home), they are leaving digital footprints that allow companies to analyze their data in order to develop customized products. According to Gartner, in 2017 6.4 billion “things” and devices have been connected, which is 30% more than in 2016. By 2020, 20.8 billion “things” are estimated to be connected.
Artificial intelligence is a technology that imitates human capacities in order to process language and self-learn. It could help in personalizing customer interactions, collecting customer insights from large unstructured data sets, and detecting fraud.
More than 60% of insurance executives indicated that AI is an important emerging technology. AI ranks as the third most important emerging technology and is expected to be the biggest beneficiary of investment dollars over the next one to three years.
Trend 3: The blockchain is real
According to Andy Hopkins, Head of Strategy and Architecture, at QBE Insurance Group Limited, “Blockchain has the potential to kill the market and will create a radical shift in the industry”. Blockchain offers many insurance applications, including efficient information interaction, simplified claims submission, and improved fraud management. By mutualizing infrastructure and creating a common truth, firms could improve operational efficiencies and save a significant amount of time.
For example, traditional insurance companies currently resolve a claim by a customer in several weeks and sometimes in several months, but millennials expect that a claim they make to their insurer should take merely hours in the near future. Smart contracts, achieved through blockchain technology, can make settlements in only a matter of hours possible. Furthermore, blockchain technology could also save insurance companies billions of dollars, as it is estimated that 5% of all insurance claims are fraudulent, which costs insurers approximately $60 billion in annual losses.
Trend 4: Innovate to win
The insurance industry is undergoing the digital disruption, but insurance companies are still lagging behind in leveraging advanced technologies to meet customer needs. Traditional insurance companies should prioritize adopting innovative technologies, as technological revolutions rarely result in redistribution of power among incumbents. Instead, these developments more often produce new winners in the value chain. Traditional insurance companies who will not innovate stand to lose out on the insurance market, which has a total worth of $ 4.5 trillion.
Summary: What to do
Digital innovations and technologies are rapidly changing the insurance industry landscape. As more “things” are connected to internet and technology is progressing fast, the traditional insurance companies need to adopt or they risk losing their market share and profit margins. If companies will not adopt new technologies and business models, they could end up as the Kodak or Blackberry of the insurance industry.
Therefore, insurance companies should innovate, create new business models, start accelerators and incubators, and partner with insurtech companies. That will help them stay relevant in 2020.
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