How Insurtech Will Accelerate The Social And Economic Impact Of Insurers

In partnership with Digital Insurance Agenda: written by Roger Peverelli and Reggy De Feniks.

Financial institutions are usually presented as the utility companies of the economy. That obviously does not reflect the sector’s importance. The financial sector plays a key part in the social and economic development of every community, country or continent. Although most people may not realise it, financial services are at the heart of the daily lives of individuals and businesses. A large percentage of homeowners – in some countries more than 80% – have taken out a mortgage. An ever-growing part of medical costs is covered by insurances. A vast number of businesses is financed by banks. All the great challenges we face in the coming decade – climate change, natural disasters, poverty, ageing, health care, water, waste, energy, you name it – require solutions in which financial services play a key role.

Leverage assets and competences for social and economic impact

In our discussions with insurance executives across the globe we learned that virtually everyone is aware of this important role and committed to playing this role to the best of their abilities.

Over the last decade the concept of corporate sustainability or corporate socially responsible business has acquired new meaning. It is no longer a matter of doing something for charity or having a climate-neutral office. It is about accepting broader responsibilities and always keeping the greater purpose in mind: the company’s role in society, serving society. It is about the raison d’être of the company itself. And to have a big impact on society, it is about leveraging specific assets and competences.

Consumers long for institutions that care

The fact that the insurance industry is reaffirming its commitment to contributing to social and economic development is essential from a business point of view. Today’s consumers make their choices not only based on price and product features but also on what they know about a company. Reputation and social responsibility are becoming increasingly important in their perceptions. Consumers are longing more than ever for institutions that care.

This trend will continue to gain in importance because of the rise of millennials. This generation is considered to include the most socially conscious consumers to date. For many, ‘sharing and giving’ has replaced ‘taking and having’ as their status symbol of choice. More than any other generation they make a direct connection between the degree to which they trust a company and how this company behaves and acts socially. They also want to see their norms and values reflected in the company they work for. They want to work for companies of which they can be proud.

Insurtech allows carriers to play a bigger part

We believe the insurtech community is able to support the insurance industry in taking this role much better than ever before. Just like entry barriers have been eroded due to the advancements in technology, resulting in all sorts of new ideas and concepts introduced in a cost efficient fashion by new entrants, we also notice that new technologies are taking away the hurdles that previously existed to play that bigger part. A first analysis of the 2,000 insurtechs in the DIA insurtech database reveals there are already various areas where insurtech innovations are applying such new technologies resulting in substantial social and economic impact. Let’s take a closer look at three examples of such domains.

  1. Improving patient care and decrease health costs in an ageing population

Everyone in the health community agrees that in most developed markets current health systems are not sustainable due to the rapidly-ageing population and rising healthcare costs. Traditionally healthcare delivery has been focused on face-to-face interactions, resulting in high costs. Connected healthcare devices allow healthcare providers as well as health insurers to extend their reach and interactions with patients. Sharing data among all stakeholders, optimal use of this data and remote patient monitoring have the potential to change the business model entirely, keeping healthcare efficient, affordable and accessible. Connected health devices therefore form the foundation for entirely new business models in health; shifting from a transactional to a relational, collaborative, participatory model, assisting customers to manage their health over time.

Allm: Allm (Tokyo, Japan) is dedicated to reshaping healthcare by developing HealthTech medical communications platforms for healthcare professionals and the medical industry, using cloud technologies and smart devices. A more efficient communication and new innovative technologies help to improve decision making and can save more lives and reduce costs while improving customer experiences.

Chunyu Doctor: Chunyu Doctor is the largest online telemedicine platform in China with more than 100 million registered users. Chunyu offers among others a solution that includes built-in medical decision rules that can automatically alert the care provider if the patient appears to be at risk for deterioration in their health status. The use of these medical decision rules not only helps provide efficient and high quality healthcare, but also decreases costs for insurers as these notifications can help to prevent complications of the patient’s underlying condition. The philosophy of the programme is to empower patients by giving them greater responsibility for their own care.

  1. Financial inclusion: micro-insurance solutions that give access to protection to previously unisurable low income families

There are around 500 million so-called smallholder families, which equals around 2 billion people, living on less than $2 a day. Typically these households rely on agricultural production and small entrepreneurial activities for their livelihoods. It doesn’t need explanation that this is a vulnerable group. For instance illness or death, or a poor crop, easily has a great effect on the financial situation of the family.

Until recently, it has been difficult for insurers to offer protection to this low-income segment. The traditional distribution models are just too costly to serve this population. And for instance risk assessment is usually based on formal information, which is not available. But fortunately, this is beginning to change. Thanks to all sorts of digital innovation there is vast opportunity to make insurance more accessible to these underinsured populations using totally new business models. Currently, the spread of mobile phones to rural areas and the use of prepaid platforms are pivotal in these new business models, to cover ‘the last mile’, to really reach these customers in a cost efficient way. At DIA Munich 2017, Vikas Chhariya, global head of digital partnerships AXA Group, mentioned Aadhaar, India’s national biometrics identity program, as an interesting new platform. Banks need to comply, so that fingerprints will give hundreds of millions Indians access to financial services, including insurance.

In all cases these new business models foster collaborations among service providers in the financial, agricultural and telecom sectors that promote financial inclusion among these smallholders giving them access to a wider set of financial and other services.

Jamii: Jamii Africa (Dar es Salaam, Tanzania) is a mobile micro-health insurance for the low-income families at $1 a month. Jamii launched in January 2015. Jamii is 100% paperless and 100% cashless with all administration processes from onboarding, premium collection, benefit ledger management, claims processing to claims payout being done via mobile phone. Cutting insurance administration costs by 95%.

BIMA: DIAmond Award winner BIMA (Stockholm, Sweden) provides insurance and underwriting to millions of lowincome people via innovative partnerships with major mobile network operators and financial services businesses. They offer a range of affordable life, personal accident and health micro insurance products. BIMA partners with leading telecoms players such as Telefonica, Orange and Axiata Group. Consumers can pay for insurance via deduction of prepaid airtime credit. In just six years, the BIMA model has transformed the insurance landscape in the countries where they operate, proving that it is possible to reach consumers at the bottom of the pyramid at scale. BIMA has over 24 million registered customers in 14 countries across 3 continents, 93% living on less than USD 10 per day.

  1. Offset the damage caused by natural disasters with new technologies

Last year, insurers had to pay out no less than $135 billion to cover losses from natural disasters, hurricanes and floods, according to Munich Re. Including uninsured damage the total loss amounted to $330 billion. Only in 2011, when the earthquake and tsunami in Japan took place, losses were higher. Typically, the role of insurers is limited to being nothing but the payer after the catastrophe has struck. But the data on disasters and the specific risk management expertise and new technologies that are now available, allow insurance carriers to play a much more important role to reduce the vulnerability to disaster risk of every client segment they serve and other stakeholders as well. This may vary from using insurance data, knowledge and tools to enhance resilience before a disaster happens, to offering relief and helping people to get back on their feet again as soon as possible once a disaster has occurred.

A variety of technologies enable insurance carriers to play that role; e.g. the internet of things, use of open data, geo-positioning, advanced data analytics, blockchain, drones, imaging and social media.

Already a decade ago US insurer Progressive started using social media to communicate around catastrophes. For example by using Twitter around severe weather events, contacting customers to give them relevant information; e.g. about which emergency number to call or where to find the Progressive catastrophe team on location.

Farmers and Allstate are two examples of carriers that created a drone fleet to assess damages even before a catastrophe area is accessible again, to take care of swifter payments so that customers feel more secure and can start thinking about rebuilding things. And of course drones have proven to actually save lives in areas with rising floodwaters.

In a report commissioned by Britain’s Department for International Development, catastrophe modelling firm RMS said that on a disaster with a loss of $30 billion every dollar immediately paid out through a parametric insurance has the same impact as $3.50 of slower-moving payments.

A parametric policies, based on blockchain technology, automatically initiates payments once a certain parameter is triggered, for instance if water reaches a certain level.

Understory: Understory (Minnesota, USA) is a smart weather hardware and analytics company that creates unprecedented details of how weather affects people and businesses. The data applications for Understory’s sensors are enormous, as $485 billion of the US economy fluctuates with weather. With Understory’s white-labelled weather and home safety insurers can easily help their customers know what to do to prevent potential property damage.

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