The insurance industry isn't exactly synonymous with “cutting edge,” but that’s changing thanks to modern technology. Insurtech is completely upending the way the insurance companies operate and how consumers access coverage.
Experts have several predictions for what 2021 holds in terms of developments in insurtech. Here’s a closer look at how the insurance landscape has in store this year.
What Is Insurtech?
Similar to financial technology companies that pioneered fintech, “insurtech” is a concept that combines “insurance” and “technology.” It’s a broad term that refers to innovations in technology and software that are meant to disrupt and improve the insurance world. Ultimately, the goal behind insurtech is to make insurance more cost-effective and efficient.
The concept surfaced around 2010, but has quickly exploded into a major industry. According to a new report by Porch.com, there are up to 3,475 insurtech companies globally, with more than 1,500 of those companies emerging in just the last five years. In all, 44% of all InsurTech companies are based in the United States.
It’s clear that insurtech is poised to grow even further. Venture capital funding for Insurtech companies has grown an average of 89% a year, according to the report. In 2020, insurtech companies raised a whopping $5.4 billion in venture capital funding.
Top Insurtech Trends For 2021
Though insurtech has been around for more than a decade, it’s rapidly evolving and we can expect many developments to the insurance landscape in 2021. Here’s a look at the top five trends to follow this year.
Bitcoin may be dominating the headlines right now, but the technology that serves as the foundation for cryptocurrency - blockchain - will also be a key component behind insurtech.
“Insuretech, with its blockchain infrastructure, rediscovers social insurance,” says Piotr Sobusiak, chief technology officer of Applover, an agency that provides digital products and blockchain technology implementation.
For example, Sobusiak notes how the blockchain-based company Teambrella gives users sole control over every insurance aspect, including policies, premiums, claims and refunds. Insurance funds are collected on a personal cryptographic wallet that’s co-controlled by the community.
But blockchain technology isn’t just convenient. It may also play a crucial role in security. The insurance industry has historically been a prime target of fraud. However, incorporating blockchain into encryption methods means medical records and other sensitive information will be much more protected against cybertheft.
“Blockchain-based solutions are already transforming the industry—helping insurers onboard clients more reliably, automating claims submission, easing reinsurance processes and designing smart insurance contracts, among other features,” Sobusiak explains. “Still, we can be sure of more blockchain expansion in the insurance market.”
Despite all its benefits, blockchain technology comes with some serious concerns, too. As it becomes more integrated with the insurance industry, insurers will have to weigh convenience against the long-term economic and environmental costs.
As much as blockchain and cryptocurrencies have the chance to transform the economy for the better, the lack of regulation means there is also a huge opportunity for scams and fraud.
Plus, the amount of energy needed to encrypt and verify blockchain transactions could lead to a devastating carbon footprint. In 2017, one UK-based research firm estimated that the average electricity used to mine bitcoin was greater than the annual energy usage of 159 countries.
Internet of Things (IoT)
“The Internet of Things” refers to the many physical devices around us that are connected to the internet, which constantly collect and share data. Popular IoT products include Amazon’s Echo, Apple’s smartwatch and Google’s Nest. It’s expected that the worldwide number of connected devices will increase to 43 billion by 2023.
IoT is becoming a major part of insurtech, according to Sobusiak. Think smart home security systems that can lower your home insurance premium, or wearable tech that helps companies price health insurance.
Aetna, for example, integrates the Apple Watch into its wellness program to collect behavioral data (such as health and physical activity) to identify pro-health behaviors and ultimately personalize insurance offers according to the user’s quality of life.
IoT integration is not only helpful to consumers, but insurers as well. It helps to simplify and accelerate the underwriting and claims process, reducing costs and expanding business. In fact, it’s estimated that automation can reduce the cost of a claims journey by as much as 30%.
Plus, networked devices allow insurers to stay in touch with customers more often and offer more products based on the data they collect. This can potentially strengthen a direct relationship with customers beyond just handling claims. In the future, insurers can also leverage this technology to partner with other companies and offer cross-industry products and services.
These advances may seem like a win-win for all involved, but there are also some major concerns around smart technology. The Big Brother-esque notion of being surrounded by millions of data-collecting devices aside, smart technology also opens the door to hackers and other cybercriminals. Research by McAfee, for instance, found security flaws in both the McLear Smart Ring and Chamberlain MyQ Hub that could be exploited by criminals to gain access to homes.
Not to mention, there is also a significant investment required to own wearable technology and install smart home products. This has the potential to price out the consumers who could benefit from these types of discounts the most.
You are increasingly able to buy insurance for your items in the same purchase. “As more of our lives become digitized, which has only been accelerated by COVID-19, more insurance products will become embedded in the experiences and purchases that customers are already having online,” says Darcy Shapiro, COO, Americas at Cover Genius. After all, having to seek out protection for a new product can feel tedious and cumbersome for an individual. By integrating coverage as an included feature, the process is much more streamlined and less likely to be put off.
Embedded insurance is becoming especially popular in the automotive industry. Tesla Inc (NASDAQ: TSLA), for instance, recently announced that it launched its own insurance product. “You can now purchase a car and the mandatory insurance specifically tailored to the vehicle you're purchasing, in one experience,” Shapiro explains. ZipCar, BMW (OTC: BMWYY) and Volvo (OTC: VLVLY) also offer embedded insurance products.
New technology platforms now enable any company with a shopping cart experience to embed the purchase of a protection product along with that brand's core product offerings. This, Shapiro says, not only leads to more product sales, but also higher customer satisfaction overall. “Expect this trend to accelerate in 2021,” she says.
More Behavior-Based Discounting
Insurers typically offer customers discounts for taking extra measures to reduce their risk. Health insurers reward non-smokers, for example. Auto insurance companies offer discounts for good driving records and anti-theft devices.
However, 2021 will bring more creative discounting programs thanks to smart technology. Rather than receiving a flat discount for taking advantage of smart monitoring or a security service, insurance customers can now receive itemized or special discounts based on their individual behaviors, according to Brett Jurgens, co-founder and CEO of Notion, a Comcast Company.
“For example, a greater discount could be offered for those using devices, such as smart sensors, in water-prone locations and for greater coverage across the home or property,” he says. “We expect to see the emergence of stacked discounting tied directly to smart technology placement, which helps create incentives for better placement and coverage.”
Virtual Insurance Experiences
One way that the pandemic has certainly changed our lives is the switch from in-person interactions to digital communication. Even after the current health crisis is under control, it’s likely that insurers will continue to rely on virtual methods of interacting with clients and providing service. We’re not just talking Zoom meetings and Facetime, either. Other, more complex and integrated experiences, including virtual reality, will take center stage in the insurance process.
Most leaders in the space agree that their companies need to innovate at an increasingly rapid pace in order to remain competitive, according to one recent survey. Out of the 623 insurance executives surveyed, 85% said they believe it will be important to leverage virtual, augmented or extended reality solutions when engaging with employees or customers, while 84% said it’s very important for their organizations to be pioneers in these virtual experiences.
Samir Gulati, chief marketing and product officer at ServicePower, says there will be increased emphasis on virtual diagnosis, claims and customer service in 2021. Insurance companies are dealing with more virtual claims than ever before. “The increased flexibility of this digital process allows customers to easily submit photos and videos of damages along with their claims,” Gulati says. This permits insurance appraisers to limit in-person meetings. But that’s not the only benefit.
“This process puts customers in the driver seat as self-service becomes the norm,” Gulati adds. “Virtual claims cut down on technician commute time and overall cost to manufacturers as customers submit claims through automated self-service platforms.”
Author Bio: Casey Bond is a reporter covering money, home and living. Her work has appeared on HuffPost, U.S. News & World Report, Yahoo Finance, MSN, Business Insider, Forbes and others. Follow her on Twitter @CaseyLynnBond.
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