In recent years, the rise of FinTech – or financial technology - has displaced the traditional industries of financial services and telecommunications. The so-called ‘FinTech revolutions’ has delivered a myriad of improvements in operational efficiency, personalised customer experiences and reduced costs.
Insurance providers are acutely aware of the benefits financial services companies are realising by incorporating tech and digitalization into their core business offerings. The pursuit of these same efficiency has birthed a new revolution: the rise of Insurtech.
In this article, we’ll explore the opportunities and key drivers of Insurtech growth so far in the UK and Europe – and also touch on the challenges facing this infant industry going forward.
What is Insurtech?
Insurtech refers to the modernising of existing insurance products and addressing the current challenges in the industry. It is characterized by the innovative use of emerging technologies, including the Internet of Things (IoT) and artificial intelligence. Insurtech startups offer an exciting new way to interact and collaborate with their customers and other providers. Many Insurtech firms focus on digital-only services over traditional face-to-face delivery channels. In the same way that Fintech offers smart and convenient financial services like retail stock trading, cryptocurrency exchange and lending to both individuals and SMEs, Insurtech delivers new opportunities for customer journeys for insurance services.
The challenges facing the insurance industry
PwC forecasts that there is a c.£50bn potential revenue opportunity arising from the disruption Fintech practices offer to the insurance market[1]. Despite this, only 14% of insurance respondents have actively invested in or formed partnerships with Fintech ventures[2].
The traditional insurance landscape struggles to adapt to a new wave of tech-savvy consumers. Consumers have now been exposed to advanced technical services built on efficiency, ease-of-use and cost-effectiveness. They have been accustomed to smartphones, online banking, social media and other advanced digital amenities from Google, Apple and Facebook.
The rise of digital lending services, retail trading and mobile banking proves there’s a market for these app-based financial services. Customers of Fintech offerings appreciate the seamless digital customer experience and the personalized offerings afforded by smartphone-powered financial services. Insurance companies are increasingly looking to do the same for Insurtech. Consumers are demanding personalised, on-demand insurance service offerings. This ‘Millennial’ client profile dislikes the immobile and generalised customer experience offered by traditional insurance providers.
Some industry players who haven’t embraced Fintech practices make poor use of automation to reduce costs and optimize insurance policies. Many providers rely too much on ‘one-size-fits-all’ approaches. Insurtech providers are instead harnessing artificial intelligence and big data to analyse key metrics about their customers and deliver personalized services tailored to the individual’s needs.
The Possibilities of Insurtech
Similar to how Fintech is geared towards retail customers, Insurtech is most fruitful when applying it to insurance services for retail clients. PwC forecasts that life and pensions, CL insurance and PL insurance are the sectors offering the best opportunity for growth (with a combined £49.5bn in potential disruptive revenue). By leveraging digitalization, insurers can unlock a wealth of data to better underwrite risk and minimize losses. Increased use of IoT technology gives insurers a detailed understanding of their customers, allowing for tailored insurance policies.
For example, fitness bands with IoT sensors measuring physical activity, heart rate, blood pressure and more can help insurers better understand the general wellbeing of life insurance customers. A startup leveraging this technology is Steppie[3] – a Warsaw-based Insurtech provider encouraging their customers to adopt healthier lifestyles. With Steppie, the more physical activity and positive lifestyle changes you make, the more points you can earn. A high number of points unlocks better health insurance offers. This delivers a personalised and intimate customer experience whilst also reducing costs for the insurance provider.
Steppie isn't alone in realising massive cost and customer experience gains with IoT. 73% of insurers are investing in emerging IoT tech to gain deeper insights. The current insurance landscape is highly risk-averse, and many commentators place the blame for this on lack of information and automation. With the wealth of information collected by social media companies, fitness providers and tech giants, it is high time insurance companies adopt the philosophy of big data to better understand risk. This has the chance of making insurance more mobile and adaptable. A smart implementation of AI algorithms can help insurers identify trends, and assess the risk of issuing policies to individuals and organisations.
The digital model of insurance means that claims are handled faster and customers can access their services 24/7. No more waiting hours in a phone queue to speak to an adviser.
With AI customer service programs, customers gain access to automated claim support. Machine learning image recognition services are being used by providers like Lemonade[4] to automatically start insurance claims, analyse evidence and make decisions with little to no human input. This reduces the chance for human error and affords a seamless customer experience.
Barriers to Insurtech adoption: Digital Skills Shortage
One of the largest barriers to the spread of Insurtech firms and ideas is the lack of hiring talent in the industry. To deliver these exciting customer-centric experiences, insurance companies require highly technical engineers and project workers to deliver the changes needed.
However, with the high level of expertise needed software developers are in high demand. This issue is less pronounced in the US, where large pockets of computer science professionals have sprung up around the major tech companies in Silicon Valley and New York City. There isn’t the same talent pool in the UK and Europe. We believe the UK could be headed for a real skills shortage where a widening digital-skills gap is delays the growth of tech-orientated projects.
This isn’t an issue exclusive to the insurance sector. Qualified tech talent is increasingly choosing more lucrative opportunities in the US, leaving Europe and the UK without the talent pool needed to pull off a swift Insurtech revolution.
Insurtech offers a way forward to maintain profitability in the insurance sector. Insurance companies are anticipating the upcoming disruption to traditional services in the next decade. Nearly three in four insurers are acutely concerned about the rising Fintech industry and its offshoots. For the insurance industry, Insurtech offers opportunities to craft more personalised customer journeys, increase efficiency and transform the way firms underwrite risk. For consumers, Insurtech should see the end of ‘one-size-fits-all’ insurance policies – with the rise of big data and IoT helping insurers craft personalised insurance services for their loyal customers.