Insurance Technology. Insurtech. Or… Insuretech? Some may call whether or not to include the ‘e’ in insurtech the gif vs jif debate of the insurance world. Or maybe that’s just me.
But what exactly IS insurtech? That’s right, I’m choosing to forgo the ‘e’. To really appreciate what insurtech is, we must first outline the traditional insurance model.
Say you apply for an insurance policy for your house. Traditionally, the insurance company will look at your application and use broad actuarial tables to calculate the risk that you pose for them as an agency (using several factors to figure out the probability that they would have to actually pay out on that policy). They then assign your policy to a certain risk category. That group is then adjusted so that enough people are lumped together, ensuring that overall, these policies are profitable for the company. They are a business, after all.
The downside to this approach is that some people end up paying more than they should pay, based on the category they’ve been lumped into. But up until recently, there hasn’t been another relatively fair way to assign risk. Insurtech uses technology to improve these insurance processes. By using real data, instead of statistical models, to create smaller, tailored risk categories, insurtechs can offer a more competitive pricing strategy and (hopefully) a more accurate and individualistic policy.
The tech in insurTECH, however, varies greatly. In general, insurtech is exploring areas that larger insurance firms aren’t incentivized to explore, such as ultra-customized policies, social insurance, and using new streams of data from Internet-enabled devices to dynamically price premiums.
For instance, some companies are using apps and wearable technology to help improve their policies and risk assessments. For instance, using GPS to establish risk zones for various climate occurrences, supply data on the speed of an insured car, and locate insured cargo in real-time. This also includes IoT (Internet of Things) technology – any device which can connect and send information via the cloud can help improve communication drastically.
Other Insurtech companies are looking to drive efficiency. Some insurtechs use satellites to monitor weather and crop incidents. As soon as a trigger event occurs, the satellite relays this information to the insurance agency, who automatically sends out an immediate, pre-specified payment amount. This not only decreases the time a policyholder has to wait for payment (much less not having to submit a claim), but it also removes the possibility of a fraudulent claim.
Another proactive use of using large amounts of data to help accurately represent risk includes using remote sensing imagery, wind and weather data, and user-entered information to identify low-risk homes in high-risk areas. For example, homes that have little proven risk of fire damage in historically wildfire-prone areas, or little risk of flooding in a flood plain. Previously these houses would’ve carried a remarkably high deductible and premium, had they even been insurable. The benefit here is that they can use satellite imagery to catch any change that might affect this policy – say vegetation encroachment or shifting structural bases.
And then there’s the AI of it all – underwriters have historically spent countless manual hours determining and validating a business’ risk and classification code. AI changes all of this. With the proliferation of technology in our everyday lives, the publicly available online resources can be sorted and categorized through AI algorithms to create a relatively well-rounded risk assessment. Scary, right?
Last but not least, insurtech is helping TREMENDOUSLY with streamlining processes. Insurance often suggests visuals of towering stacks of paperwork – form upon repetitive form to fill out, file, and process. And it’s true! Insurers handle, on average, more than 100,000 documents every year! AI helps to streamline these processes, cutting submission times from hours to minutes and increasing accuracy dramatically.
And while there are many more uses and intentions of insurtech – that truly change and expand from one day to the next – we’ll wrap up here for now. It’s a little overwhelming, isn’t it?? And while these capabilities and processes started to emerge over a decade ago (around 2010), the Covid Pandemic really put the gas on. In a world that now needs touchless applications and digital-first customer interactions, insurers had to rapidly increase their technology requirements and capabilities. The future looks bright, full of insurance products that are easier to use, more tailored to each individual, and of course, faster and faster.