Fin-tech Trends: Time to Move Insurance to the Next Level
Initially publisher in Finleap Blog
Tracing its emergence to as early as 3rd millennium BC, insurance is a tough nut for the fin-tech sector, which, let’s face it, is still emerging. In the core of the word itself, be it German ‘Versicherung’ or English ‘insurance’, lies the trust of the customers, that they can rely on the insurer of choice when they struggle the most. Disruptive and fast-developing fin-tech is not associated by everyone with security, so how can it communicate the right message?
As insurance is not famous for its brilliant user experience or flexible adjustment to the customers demand, the contemporary worldwide trend is certainly towards digitisation of the sector. Doing things as they were done in the past 30 years, including information transfer by fax, is by no means a way to continue. At the same time, the information age and new economy have created the whole bunch of new dimensions for the insurance disruption to emerge. Some promising ones are listed below, however, without any claims to be exhaustive.
New insurance forms and products.
Sure, digitisation emerges as well in more traditional insurance branches, such as health, life, property, auto, etc., which are the first candidates for breaking into with tech tools. But the rapidly developing tech industry itself creates lots of new opportunities for insurance business to tap into, addressing new types of risks, which arise along with thrilling possibilities.
Cyber risk and hacking may be the most obvious examples. As more data is created, processed and stored in a way no one could imagine a couple of decades ago, the same trend give birth to the novel type of criminal activities, to say nothing of errors and security breaches. The maturity of cyber-insurance varies across the world, apparently: countries with more sensitivity towards data protection run the show.
Nowadays, material world gets more affected by the digital, creating the new IoT industry, with its brave new world promises of self-driving cars, connected homes and wearable devices (even clothes) becoming way smarter than their owners. The downside of such connectivity is addressed much more rarely, which is going to change — and provide insurance sector with new premium streams.
Another field to consider is new ways of ensuring that increasing number of people employed by so-called on-demand, or gig, economy actually perceive themselves as labour force and feel positive about social security and future pension. While the employers are more comfortable with freelancers instead of employers, saving on taxes, latter can take care of themselves, benefiting from innovative insurance policies offered by quick-thinking insurtech companies.
There are also more exotic types of new insurance products, which protect startups against patent trolls, for example, sending customer the clear message that challenges of new era can be properly addressed by insurers.
Developing operations and user experience.
On the internal operation side, there is obviously a large scope for improvement for the insurance providers. Accenture’s ‘Beyond Insurance’ 2015 report outlines the painful process of business model transformation, as well as appearance of new firms utilising disruptive operation structure. Deloitte experts in turn point out the importance of using vast amounts of available ‘big data’, which insurance companies have been sitting on for decades but to which no proper analysis has been applied so far to set better prices and know the customers better. On the other side of the coin there are major shifts to cloud-base solutions for information storage and advanced analytics, paired with the necessity of data protection.
In terms of customer relations, the focus has to shift towards ‘digital natives’, as Morgan Stanley 2014 report puts it. Across all generations people are becoming more technically-savvy, with elderly realising the beauty of intuitively simple mobile devices, and — at the other end of spectrum — ‘Generation Z’ being already born with online identity. Following the ‘there-is-an-app-for-that’ stream, insurance has to move from being inevitable yet agonising procedure (something to be only compared to dentist appointment) to becoming as simple as ordering from online shop… with the same easiness to access the information to choose between options.
Making use of platform economy.
Recently emerged, platform economy is an incredibly powerful business model. Not only does it provide medium, which connects providers with customers, thus increasing the transparency and openness within participants, helping companies to reach out to the larger pool of consumers, but also ‘the effect is much greater potential for innovation and growth than a single product-oriented firm can generate alone’, as MIT definition goes.
Introduction of platforms to the steady pool of conservative insurers makes a lot of sense, demonstrating the customers much bigger variety of insurance products and that way increasing the competition within the sector, which otherwise would not budge. Laying out the costs structure and the additional perks from the insurers, which clients would not otherwise consider, eliminates ‘black box’ situation and makes the robust insurance methods clear and understandable. Insurtech platforms basically eliminate the unnecessary complexity out of the equation.
As CB Insights reports, in the first quarter of 2016 alone there were 47 financing deals for insurtech startups, almost twice as many as in the whole 2011. $650mln in total was invested in January-March 2016, with U.S. holding a lion share of 60%. A number of new tech companies, wishing to pick the cherries from the huge tree of insurance industry, is appearing every day across the variety of branches, and it’s only the beginning of the insurtech disruption era. And the path to follow for the fin-tech industry is certainly towards combining the best practices in storing, processing and analysing data to assure smooth operations, high degree of safety and flawless customer experience.
