Fintech has become a big buzzword lately, although the inter-linkage of finance and technology is not a new concept. We exist in a world where mobile phones are used more than physical branches for banking, and where you can get a loan from a stranger through a peer-to-peer lending model, such as Lendico or RocMyPeer in South Africa. You can even authenticate mobile payments by scanning your face with a smartphone, using the ‘Smile to pay’ service launched by Chinese e-commerce giant, Alibaba.
Indeed, Fintech innovation has spread across the financial sector, and spans from mobile banking and payments to small business lending, credit scoring, savings and much more. Until recently, the insurance sector remained relatively untouched by the Fintech revolution, which is quite surprising really, given the notoriously bad reputation of insurance companies and their generally antiquated product delivery. This is all starting to change though, and fast. Here are five things you should know about the future of insurance.
By Jody Delichte, Chief Marketing Officer, Inclusivity Solutions
1: The future is here. Now.
Last year was labeled the year of Insurtech, with funding for Insurtech startups reaching more than $2.5 billion. It's hard to say exactly how many Insurtech companies exist today, but some trackers report well over 500. This includes innovations ranging from product development to distribution to claims, and everything in between.
Some companies are focused on improving data and analytics. FitSense for example, offers an analytics platform that allows insurance companies to leverage data from wearables and smartphones. Another company, AdviceRobo, combines data from structured and unstructured sources to score and predict consumer risk behaviour on an individual level. They apply big behavioural data and machine learning to generate predictions on default, bad debt, prepayments and customer churn. A company called EagleView Technologies is even providing aerial imagery, data analytics, and geographic information solutions based on aircraft and drones that capture images throughout the year. The data is valuable for use cases such as assessing property damage in an area before and after a storm. Other companies, such as ValChoice and Insurify, focus on improving the consumer's buying experience through advanced product comparison capabilities. Companies such as ClaimKit are more focused on improving the claims process, through digitisation and streamlining using advanced analytics. This is just a small sample of the many innovations in the insurance space around the world today, and we can expect to see many more going forward across the entire insurance value chain.
2: It is not just about technology innovation
Insuretech is not just about technology innovation, it's also about business model innovation. Cuvva for example provides car insurance in the UK that enables people to purchase cover only when they need it. This could be for a single hour or a whole day. They offer a completely digital experience, where consumers can use a mobile app to sign up, get a quote, and buy coverage in less than 10 minutes. 'Bite sized' or 'on-demand' insurance coverage is becoming more popular. Companies like Metromile in the US are offering pay-per-mile insurance for low-mileage drivers, and Trov is soon to launch on-demand protection for only the items a customer wants to insure, when they want to via their phone.
Peer-to-peer insurance models are also gaining a lot of attention in more developed countries, with a number of companies popping up around the world, including Friendsurance in Germany, Lemonade in the US, Inspeer in France, PeerCover in New Zealand, and TongJuBao in China.
We're also seeing more bundling of insurance offerings with other related services that leverage technology. Oscar for example, provides health insurance in the US, which includes a smartphone app that enables customers to talk to a doctor, get prescriptions, and keep track of their health history. Customers can also earn rewards for staying active using wearable devices like a step tracker.
3: New players are entering the market
Technology is enabling new players to enter the insurance market. Beam started out as a technology company providing an Internet-of-things toothbrush in the US. Using sensors and Bluetooth technology, the toothbrush logs users brushing habits and sends data to a smartphone app. At the end of last year, the company extended its offering to include group-based dental insurance. The better your group brushes, the more you can save on your premiums. Beam aims to deliver 10 to 25 percent lower premiums for both large and small employers.
Mobile technology is enabling new companies to offer innovative insurance solutions, but it's also enabling large incumbent organisations, like mobile operators, to play a more significant role in the insurance space.
Microinsurance in emerging markets by its very nature equates to innovation. The context within which it exists is often characterised by limited data, lower income consumers, large unbanked populations, and challenges with reach in rural areas. This requires new methods of distribution and more cost effective ways of doing things.
Mobile microinsurance addresses existing challenges by leveraging mobile channels for communication, registration, payment of premiums via airtime deduction or mobile money, claims submission and claims pay-outs. Loyalty or freemium offers by mobile operators such as Tigo in Ghana and most recently Telenor in India, can be useful in increasing awareness and appreciation of insurance. Telenor in India, for example, has already had more than 20 million customers opt-in for its free product since its launch at the end of 2015. Some mobile operators are partnering with specialist service providers, like Inclusivity Solutions, as well as insurance companies, to deliver mobile mociroinsurance offerings. Others, like Vodacom in South Africa and Econet in Zimbabwe have their own insurance licenses.
4: Insurtech is an opportunity
Ultimately, the Insurtech revolution is an opportunity for insurance customers. Insurtech has the potential to deliver products more tailored to customer needs, at better prices, with more effective delivery and management. It is also an opportunity for new players to address existing challenges and drive new business. Mobile operators for example have benefited from reduced customer churn, increased average revenue per user (ARPU), and new revenue streams.
While Insurtech may be seen by some as a threat to insurance companies, it's also an opportunity. It is an opportunity to improve efficiencies, reduce costs, and extend new products to previously untapped markets, such as emerging consumers. But in order to leverage this opportunity, traditional players need to shake themselves out of institutional complacency.
In the coming years, existing insurance sector players will need to become Insurtech centred. They will have to think about how they evolve their own model and which parts of their value chain need transformation. Transformation can be achieved through different strategies, including partnerships with startups and other incumbents, and through acquisitions. Solutions can also be built in-house, although this may require insurers to divide into separate units, whereby one runs the business and the other is removed from the burden of legacy in order to innovate.
5: Customer-centricity is key
This last point may seem obvious, but it's sometimes forgotten in the excitement of innovation that at one time seemed futuristic or far-fetched. People like hearing about cool new technology innovations. That's why whenever I talk about Insurtech I remind people that just because an innovation is cool, it does not guarantee success. There will be a lot of ideas and innovations, but the successful ones will be those that deliver real value and address existing gaps and problems.
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