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From Claim Regulation to Risk Prevention: How Insurers Can Benefit From Intelligent Algorithms and IoT

By Marius Blaesing, Founder and CTO of Getsafe

Insurance via smartphone with information and advice at their fingertips – that’s what customers who buy a policy for the first time expect today. In the long term, the companies that will prevail in the market will be those that best meet these changing customer requirements. But there is still a long way to go. 

Over the last two decades, technology has dramatically changed the way people interact with products and services. This trend towards digital systems that are available on demand in real time is now also gaining in importance in the insurance industry. Insurance companies need to change.

Insurtechs recognised this need early on and offer digital services along the entire value chain. Established insurers are also following suit, investing millions in online distribution channels or apps to facilitate interaction with their customers. Technologies such as telematics are also changing tariffs and rewarding certain customer behaviour as in the case of car insurance rewarding customers with a prudent driving style with discounts.

However, a coherent overall concept is still lacking. A study by the international strategy consultancy Bain & Company has concluded that 60 percent of insurance companies do not have a realistic plan to master the digital change. Many of the welcome approaches fall rather under the category of blind activism, according to the motto: “We’ll do something digital now and then”. Customer needs are often insufficiently understood. But this is exactly what is essential in order to do justice to the fundamental changes in customer behaviour in this digital age. 

Data is the most valuable currency for insurance companies. More than nearly any other industry, the insurance industry has an immense interest in data: The more precisely insurers know about their customers, the more they can refine risk profiles and thus adjust prices more accurately. 

Data is the most valuable currency for insurance companies.

Until then, software robots will increasingly automate simple, structured processes. Robotic process automation, or RPA for short, is the name of this technology, which emerged from the classic manufacturing industry. Unlike factories, however, insurers use virtual robots rather than physical robots to relieve people of simple copy-paste tasks or similar identical work steps. The robots imitate the user behaviour of humans with the software and are therefore not laboriously integrated into the existing IT infrastructure. This is quickly implemented and inexpensive.

However, the tasks are still limited to quite simple work processes. These include billing, changes to address data or bank details, the transfer of data to databases or the processing of termination letters. The virtual workforce is therefore not in a position to react flexibly to deviations, for example if data is entered incompletely or incorrectly. In this respect, RPA is only an intermediate step on the way to the complete digitalization of business processes. 

The prerequisite for this is an infrastructure that allows customer data to be bundled across the entire contract term and all interfaces. This is exactly what is lacking at present:

The separation of business into health, life, accident and property insurance, different legal entities, mergers and acquisitions and collaboration with third parties have resulted in countless data silos and systems unable to exchange data with each other. Outdated IT systems from the 1990s make integration even more difficult.

In the far future, insurers will no longer manage claims, but rather prevent risks.

In the medium term, however, there is no way around AI in the insurance industry. No other industry relies so heavily on data – data is practically the product itself- an insurance policy is a contract based on a mathematical model and probabilities. Access to increased data will give trusted customers a much better insurance experience than before. They will benefit from uncomplicated claims processing and individually tailored product packages. KIs in conjunction with sensors and the Internet of Things could warn people of possible risks – for example, when a thunderstorm is expected or the level of bicycle theft in a particular neighborhood-excellent ways to respond to customer needs and improve customer relations.

And the few black sheep? Insurance fraudsters will find it harder to take out a policy at all. And if it comes to damage, the customer service will examine these people much more closely. All this will enable, insurances to become fairer again because fraud is the biggest inefficiency in the system. 

In this respect, the insurance industry is facing a radical upheaval. In the future, machines will automate many processes – but the decisive criteria, categories and value judgements will still be determined by people. 

What’s next? In the far future, insurers will no longer manage claims, but rather prevent risks. One very special aspect of insurance is that there is a perfect fit between what the customer wants and what the insurance company wants. But insurance companies only make a profit if they don’t have to spend the premiums on claims. 

So in the long term, insurers will go through a lot of struggle to prevent risks from happening. IoT is the means to do so: sensors on cars, buses, bikes and other vehicles will make mobility much safer. Fitness watches and other smart devices might warn people from unhealthy behaviour or eating habits. Already today, sensors on washing machines, dishwashers or smoke detectors help to prevent damage. And this trend will continue. We are just seeing the very beginning of it. In 100 years, we still won’t live a completely riskless and predictable life. But thanks to data and smart systems, we will better be able to minimize those risks – and insurtechs will play a major role here.

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