Though the fintech industry is getting more and more mainstream globally, there is still a learning curve for many people as to what fintech actually is, and a lot of jargon which can be hard to understand if you’re not in the know. In this new series of articles, The Fintech Times plans to breakdown all aspects of fintech to help those interested to learn and understand the industry, making it more accessible for all.
Insurtech stands for insurance technology and represents a broad category of fintechs and other technologies used in the insurance industry. Like with any fintech, Insurtech aims to solve a problem. Whether that problem is helping to lower the cost of premiums for consumers or to make it easier for them to apply in the first place, insurtech is there to just generally make the insurance industry better, enhancing operations for consumers and companies.
Insurance is an important facet of everyday life and helps handle the risk of extraordinary or unprecedented events. If its something we love or is important to us, we’re going to insure it. Whether that’s our homes, our lives or our pets, to name just a few, insurance helps to plan for the worst and give options and solutions when that worst happens. Most adults in the UK will be familiar with insurance in one way or another; it’s a legal requirement for cars to be insured in the UK, and a common-sense approach is often taken when to comes to home, life and travel insurances.
As of 2019, the UK insurance market was the largest in Europe and has an estimated total premium volume of around £163 billion. This, combined with the age of the industry makes it a perfect place for innovation and disruption, with a number of different companies poised to take advantage of the opportunities available.
Though people may be unfamiliar with the term “insurtech”, it’s likely that they have interacted with one in their everyday lives. The most popular by far is the huge amount of price comparison websites available, allowing consumers to compare different policies to see which best suits their needs and budgets. Even if you haven’t used one of these sites, you will definitely at least be familiar with a pair of Russian meerkats the nation fell in love with all those years ago…
How has insurtech changed the insurance industry
Insurance is a very old business and is one of the oldest financial industries in the world. Because of this, there can be a slight reluctance to embrace innovation. This can be down to a number of factors. Firstly, the industry is controlled by a series of regulatory bodies, compliance standards and other rules and restrictions that dictate how they do business. Similarly to the strict control of banks and financial institutions, these insurance regulations can mean that innovative processes and services can be difficult to adopt and slow to the uptake. Usually, customers wanting a policy are assigned to a risk category which will make premiums go up or down depending on the risk to the company. So, for example, a heavy smoker will have to pay more for life insurance than a non-smoker due to the health risks involved, or a young driver will have to pay a higher premium for car insurance as they have usually had less experience than someone older.
Though seemingly straightforward enough, the traditional way involves people in these risk categories being lumped together to ensure that the insurance is profitable for the company but results in some people may be paying more than they should. This is where insurtech comes in, as one of its aims is to change the way risk is calculated resulting in fairer pricing of premiums.
What kinds of insurtech are there?
There are a wide variety of fintechs serving several different purposes, but generally speaking they will usually be park of one of the following categories:
Artificial Intelligence: Artificial intelligence is incredibly useful to the insurance industry, as AI can perform functions that are normally associated with humans. For example, answering low-level queries and frequently asked questions through chatbots, leaving operatives free to work on other things.
Machine learning is a facet of AI can also be used widely. This is where machines analyse data, identifying patterns from data. In their nature, insurance companies gather a lot of personal data about their consumers, and when used and analysed correctly this data can be used for a whole host of things. Effective risk pricing is one way, where analysing applications, claims data, and other data in order to assign risk to customers more effectively and in theory offer better and fairer pricing to customers.
Machine learning can also be used in detecting fraud and can analyse patterns of behaviour from consumers and recognise fraudulent claims that human employees may have missed. It can also be used for processing claims automatically, without the need for human intervention, and even more personalised services like checking whether customers can get a better deal elsewhere.
Internet of things: This term means devices that connect to the internet – for example, “smart” meters or fitness watches. These can be used in the insurance industry to help monitor insured items. Cars and telematics are the main use cases of IoT, using electronic devices in vehicles that can be used to track the assets as well as rate the driving habits of the user, affecting their premiums should they engage in “dangerous” driving.
Apps: Like with anything, with insurtech “there’s an app for that…” Similarly to banking apps, insurtechs can offer mobile applications to make using services easier. Not only are 24/7 channels desirable consumers, but the ease of just clicking on an app to get something done is particularly advantageous to the digital-savvy younger generations. Whether it’s checking up on your policy or making a claim, apps can streamline the process for both sides.
Micro-insurance – These involve smaller, on-demand personalised policies designed for small, or micro, events like borrowing a friend’s car for a day, or offering coverage for low-income households or for lower valued assets. This market has a lot of potential for profit, which many insurtechs are taking advantage of.
Price-comparison – We all love a bargain, and price comparison sites and apps can help consumers compare policies and find the best prices all in one search.