Not too long ago, the vision of a digital insurance company was one that extended services and offerings over web-based channels that offered 24/7 customer service to augment and add some intelligence to existing product sets. These days, the concept of digitization is going even further than that.
In a recent report, Munich Re and IT Ergo pointed out that insurance technology is increasingly resembling that of the Amazons, Googles and Facebooks of the world – responsive, smart and adapting from sub-second to sub-second to changing realities.
In identifying the technology trends shaping the industry this year, the leading disruptive force is “algorithmic business,” the report’s authors state. This is a business built on big data, employing smart algorithms to interact in real time, while understanding customer preferences and actions. Amazon is famous for its algorithmic approaches, and the report’s authors foresee more insurers taking this route as well. Such a model helps deliver “better, fast and independent decisions by automated analytical processes,” as well as boosting efficiency and cost savings.
While it’s not clear from the report how this will manifest itself in insurance companies, it can be assumed that by putting more offerings online, for example, insurance companies can employ real-time analytics to better gauge and act on the risk profiles of buyers, adjusting offers accordingly. In addition, powerful algorithms can help develop a better sense of what customers are looking for in their insurance, and what their needs will be throughout the lifecycle of the engagement. Is this person buying renters’ insurance likely to be needing homeowners insurance in the near future? What’s the propensity of a customer with a discounted bundled plan to switch carriers, versus a single-product purchaser? What kinds of incentives will increase bundled purchases?
Algorithmic business also addresses internal operations as well. What’s the most efficient way for claims adjustors in the field to prioritize their accounts? What’s the likelihood of a claim being settled in rapid order?
Second on Munich Re’s disruptive technology list is blockchain technology. Blockchain, which is essentially a highly distributed, online global general ledger or database, offers a way to manage information without third-party applications or services, manifested as “smart contracts.” Ostensibly, its disrupted nature – across many computers, with no owner -- also provides security. It is the underlying ledger for cryptocurrency, and has the full attention of financial services organizations – including some leading insurers. “A total of $1 billion has been invested already in Bitcoin-related tech start-ups by companies such as American Express, Bain Capital, Deloitte, Goldman Sachs, Mastercard, the New York Life Insurance Company and the New York Stock Exchange,” the report states. The virtual general ledger may serve as the portfolio the helps track and settle accounts between primary carriers and reinsurers, the report’s authors propose. “Automated smart contracts or transactions become frictionless and can be processed more quickly with less bureaucracy -- e. g. identity validation,” they state.
In addition, blockchain may open up new insurtech enterprises, offering new models such as “peer-to-peer insurances or smart policies -- e.g. automatic pay-outs based on a climate data feed for crop insurances.”
The third disruptive technology trend to be watched in the insurance sector is new payment models. This is seen as essential for attracting the incoming generation of insurance buyers – the Millennials – who value the ability to purchase services on the spot, using nothing more than a mobile device. New payment models can encompass mobile payment modes, as well as virtual payments systems or cryptocurrency. Other disruptive technology trends mentioned in the report include the Internet of Things, advanced machine learning, smart homes, and digital health services.
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