Professors Lin Lin and Christopher Chen, in a paper written for the National University of Singapore (NUS), have dubbed insurtech as “a subset of fintech.” The paper entitled “The Promise and Perils of InsurTech,” tackled the increasing investment funding in the sector, a sign of the technology’s many promising applications that could radically change the insurance sector.
According to the authors, “The basis of this increased interest is the development of technology, which promises heretofore unmatched levels of precision and accuracy in terms of predictive capabilities.” Specifically, the insurtech market size is expected to reach US$10.14 billion in the next five years or by 2025.
Present and Future Insurtech Applications
Insurtech has wide applications, ranging from underwriting, risk profiling, insurance claims processing, and product development. It can take the form of chatbots, online portals, and other innovations that use blockchain, the Internet of Things (IoT), artificial intelligence (AI), and machine learning (ML). Here are a few applications of insurtech that are disrupting the insurance sector.
Ease in Selecting the Most Suitable Insurance Products
Customers often find themselves groping when it comes to selecting insurance products and providers. Such a task usually entails hours of research and gigabytes of data to review and compare. With the help of insurtech, the research and selection processes are streamlined by comparing key factors of different insurance products based on data the customer provides.
Some examples of this technology include Insurify, Compare.com, and The Zebra. These tools are akin to shopping comparison sites, many of which provide an option to connect to the user’s social media accounts. They would then use the data from the user’s social media profiles to present matching insurance products and insurers.
While most insurance comparison platforms provide an estimated quotation, the future of insurtech could provide actual quotes, as more insurers venture into using the technology. Furthermore, future insurance comparison applications could compare more than prices and coverage, ease of claims processing, and other pertinent information that can influence buying decisions.
Hassle-Free Claims Processing and Settlement
Claims processing is one of the most tedious parts of any insured-insurer relationship, with some customers describing their experiences as painful, complicated, and inconvenient. Since the difficulty in claims processing often stems from misunderstandings about requirements and policy details, this could be minimized with the help of insurtech.
In their paper, Lin and Chen mentioned that this could be achieved “by having a platform linking insured persons, vehicle workshops, and insurers using applications like Snapsheet; assisting in disaster-related claims inspections using Spex; or linking patients to doctors and insurers via software like Sherpaa.”
Such technology aims to reduce the cost of filing insurance claims and make the process smoother and more convenient.
Digital Distribution of Insurance Products
There could come a time when customers no longer need to talk to an insurance agent to purchase a product. Insurtech could make the digital distribution or online selling of insurance products possible.
For one, data science could make risk profiling easier and more accurate. After automated risk profiling, customers could be redirected to self-service platforms to see quotations, make adjustments, and finally purchase an insurance product. The future of insurtech would look similar to the online booking of plane tickets, where customers can select add-ons and choose their baggage allowances, depending on their budgets. And all these are within the tips of their fingers.
Obstacles Faced by Insurtech Entrants
Insurtech’s promising capabilities are not without challenges, as Lin and Chen detailed in their paper. Among the problems that insurtech startups and developers face are data accuracy and protection, cybersecurity, insurance fraud, and strict regulations.
While some of these challenges can be addressed by innovation, regulatory compliance might be the biggest obstacle. According to Lin and Chen, “Indeed, tight regulations, high capital barriers, and difficulties in obtaining a license to operate have been identified as the main challenges facing new entrants in the insurance sector.”
The above-mentioned insutech applications sound very promising, and we only mentioned a few. The use of distributed ledgers and smart contracts could also disrupt the insurance industry. The challenge, however, lies in the rules and regulations that govern the insurance sector. The cost of complying with these regulations could put off insurtech startups. As Lin and Chen espouse, “There is a need to reduce regulatory and compliance costs without compromising regulatory goals through the use of targeted regulation.”