Technology has played a large part in the evolution of almost every industry, and finally the insurance industry has reached the same sorts of advancement.
Xavier Mutzig from Johnson Matthey recently made ripples in the insurance industry by claiming that “insurance hasn’t evolved since the Industrial Revolution.” The experienced FTSE 100 insurance manager went on to argue that “If things don’t change there will come the day when insurance will not be relevant anymore and companies will find other ways to finance their risks.”
However, while Mutzig is correct in highlighting the slow evolution of insurance companies, the financial sector as a whole has been slow to innovate. It has only been in the last few years that leading retail banks have begun fine tuning their digital and mobile offerings, and partnering with or acquiring fintech startups. Ron Shevlin argues that it is only since since Millennials growing power in the economy provided enough demographic change and economic incentive that the financial sector has been forced to modernize or risk being made redundant.
And late is different than never. According to CB Insights P&C insurance tech saw 50% more deal activity in the first half of 2016 than in all of the previous year, with general Insurance tech startups raising $1.7B across 173 deals last year. New technology is improving the overall user experiences, accuracy, speed, sophistication, and lowering costs and premiums.
Here are 3 ways that new innovative technology is adding value to this industry:
New technology is making underwriting and claims quicker and more efficient
Insurance companies hire huge teams of underwriters and claims adjusters to assess insurance consumers’ backgrounds — financial, medical, employment– to fairly assess how much their policies should cost, and the amount to be paid when claims are made. In the past, these processes were time-consuming, and required insurance customers to provide swathes of documents for assessment, and in manual in depth assessment processes and investigations from the insurance company. However, thanks to advances in the field of analytics, the process is being made quicker and more efficient.
By analyzing applicant information digitally and comparing this data with hundreds or thousands of cases of users with similar backgrounds, insurance companies are able to do a better job of accurately underwriting. Thanks to public and government institutions increasingly moving records online, insurance companies are able to tap into online databases to verify information for medical, employment, and real estate and car ownership records to reduce cases of fraudulent activity by claimants.
Harnessing the power of big data analytics to quickly, and fairly make underwriting and claims assessments based on previous cases offers insurance companies a competitive advantage that appeals to the ‘On-demand’ generation, who want transactions done digitally and quickly. Consumers are driving innovation in insurance tech by demanding speed, transparency and collaboration, and as all other aspects of their lives become ‘Ubered’ consumers expect insurance to follow suite.
A Japanese firm, Fukoku Mutual Life Insurance recently cut 34 staff by launching a new system powered by IBM Watson. The firm claims the new system will increase productivity by 30% by digitizing the process of analyzing tens of thousands of medical certificates and factoring in the length of hospital stays, medical histories and any surgical procedures before calculating payouts.
By making more accurate assessments from the outset, insurance companies would receive less claims which would in turn lower premiums and costs for consumers. While the new tech may be bad news for human underwriters, it is great news for insurance companies and their customers.
Telemetrics offer a new level of transparency and fairer pricing
Telemetrics have been the talk of insurance town for a couple of years now, as Internet of Things linked sensors offer companies insights into their customers lives, and valuable data that can be used to assess risk. But while many consumers voiced concern about insurance carriers ‘snooping’ into their driving behaviour or health, there are benefits on both sides of the table.
While drivers may baulk at the prospect of having every sharp turn or emergency stop registered digitally, sensors are increasingly being used in a preventive manner to highlight problems before they cause expensive damages. According to Berg Insight, only 6% of North American homes were connected in 2015, but by 2020, 28% of homes will be linked to the IoT offering a means for homeowners to protect their prized belongings digitally.
Insurance companies are increasingly partnering with sensor startups to protect their clients’ homes. Leak-detection and automatic water shutoff systems, temperature gauges which notify fire services and proactive fire and break-in detection systems can help reduce risks for home-owners, and claims for insurance companies, which will in turn keep premium costs low.
While consumers may be wary of anything resembling Orwell’s 1984 offering third parties too many insights into their private lives, they may be more interested when insurance companies start offering much lower prices to those who take extra measures to stay safe and healthy. Seventy-eight percent of motorists think that the price they pay for insurance should be linked to their driving behaviour, so why should the same not count for those of us who take good care of their health and properties too?
Technology adoption is helping to better identify fraud
According to a recent study by LexisNexis, 35% of respondents consider it acceptable to falsify data on insurance applications or claims, viewing insurance fraud to be a victimless crime. However, on the contrary, the FBI claims insurance fraud costs the average U.S. family as much as $700 per year. As fraud increases and insurance companies need to make more payment, everyone is affected when insurance premiums rise.
Insurance companies are left in a difficult situation. They want to provide a quick, efficient service that is increasingly automated and online, but risk allowing fraudulent claims to slip through the net if human assessors do not take time checking claims for warning signs. In the past, fraud detection relied predominantly on assessor’s intuition. However nowadays, thanks to evolving big data analytics tools underwriters and claim adjustors can lean on millions of data points online to highlight foul play.
The most common method is by using technology to ‘red flag’ possible fraudulent claims. Analytics can help human teams note suspicious activity and patterns, after searching through vast quantities of data submitted by the client and previous cases which have similar characteristics.
Web analytics can be also be used when vetting potential new clients by finding links between potential new clients and known fraudsters, by browsing communications on social media networks, customer call centers and the rest of the web.
The insurance industry is entering a new technological renaissance. After decades of inactivity, leading companies are attempting to rapidly advance their systems and processes with the help of technology to keep a hold of increasingly tech savvy consumers who expect their insurance to be as easy, efficient and secure as every other aspect of their lives. While the industry has been slow to adapt, we have reached the stage when the world’s leading companies will be defined by their technological agility, and everyone else will slowly but surely disappear.
Sean Maher is the Co-Founder of Swyfft, a platform that makes switching homeowners insurance amazingly fast and easier than ever. Sean is a serial entrepreneur with extensive experience across insurance, big data, analytics and health and has also picked up an MBA from University of Cambridge.