The finance industry isn’t generally associated with tech innovation or early adoption. But just like any other industry, the finance industry is also not averse to digital disruption. Recent technology trends in the fintech and insurance sectors are transforming the way we work, live, and financially protect ourselves.
Those working in the insurance sector understand that the lives of their customers are being transformed by new technologies. They understand that the sector as a whole is undergoing an ecosystem transformation, forcing insurance companies to evolve and reinvent themselves.
‘Insurtech’, the short for ‘insurance technology’, is a term being used these days to describe new technologies that can bring innovation in the insurance sector. Insurtech has led to immeasurable efficiency gains, better risk identification, and improved data collection.
As per a report by Accenture, about 86% of insurers believe that they need to innovate at an increasingly rapid pace to retain a competitive edge and almost 96% believe that digital ecosystems are making an impact on the insurance sector.
That is why it becomes crucial for insurance companies to keep an eye on emerging technologies in order to maintain a competitive edge.
This article talks about some relevant technologies that are being viewed as having the potential to bring innovation in the insurance sector.
A ‘Smart Contract’ is a type of contract that can execute or enforce itself. These contracts are basically lines of code that are stored on a blockchain. When certain predetermined terms and conditions are met, they can automatically execute themselves.
The global market for smart contracts is expected to reach a valuation of $300 million by the end of 2023.
Smart contracts have implications for the insurance sector because they can define strict rules and consequences that emulate a traditional legal document. These contracts avoid the need for an intermediary or a large centralized authority, hence making them decentralized.
Cryptocurrencies like Bitcoin or Ethereum are examples of smart contracts. Recently, Bitcoin dominated the news by reaching its highest-ever valuation of $41,973. Those in the insurance sector could thus benefit from keeping an eye on the development of smart contract technology.
Some key benefits of smart contracts are –
- Smart contracts are automated, so one doesn’t need to spend time processing paperwork or correcting errors in the written documents. This speeds up the process and also offers high accuracy.
- Smart contracts can automatically execute transactions and the encrypted records of these transactions are shared across participants – building trust among the concerned parties.
- The transactions recorded in smart contracts can be very hard to hack. Since each record is in turn connected to previous and subsequent records, the whole chain needs to be altered to change a single record. This makes smart contracts highly secure.
- As discussed above, smart contracts are decentralized in nature and, hence, do not need intermediaries. This increases savings for both the parties involved.
Artificial Intelligence and Machine Learning
Artificial intelligence (AI) is the hottest trend today, and its hype is justified considering the implications of this technology.
In simple terms, AI is a set of computerized tools that are capable of emulating human intelligence. AI, along with Machine Learning (ML), has the potential to impact every aspect of the insurance business by making all processes much more efficient. It can be used by insurers to provide better, faster, and cheaper services to their customers.
As per McKinsey, AI tech has a potential annual value of up to $1.1 trillion if it’s fully applied to the insurance industry.
AI can enable numerous benefits for the insurance industry including improved productivity, enhanced customer experience, efficient claims management, and reduced frauds. Some other benefits of AI in insurance include –
- With AI and ML, the insurance companies can easily analyze historical data to identify a set of patterns. These patterns can be crucial in detecting fraud at an earlier stage.
- AI can enable efficient claims management by streamlining the end-to-end process. AI bots can review claims, verify policy details, and check for fraud.
- Insurance agents can use AI to gain detailed insights into customers like their interests, shopping patterns, and demographics, etc. This information can help them pitch policies to customers as per their needs.
- With AI-powered chatbots, insurance companies can simplify the experience for customers visiting their websites. Chatbots can help quickly answer any customer queries while also being available 24×7.
Data analytics is experiencing high investment from insurers. Insurance companies are increasingly relying on collecting data to understand their customer preferences better. By collecting data from activity trackers, smart cars, and smartphones, etc., insurance companies are trying to deliver customized advice, coverage, and tailored pricing. Insurers are thus starting to put customers at the core of their operations.
There has been a shift in companies’ perception since most insurance companies these days view their customers as individuals and not as customer segments.
Such data-backed personalization can benefit both the customers and insurers alike. Some examples include –
- There has been a rise in the popularity of usage-based insurance policies. Companies use customer data in order to charge customers according to their specific needs or behaviors. This puts the customers in charge of their own fees.
- It can improve customer satisfaction by providing them tailored products.
- The companies can enjoy accurate risk assessment and stable margins.
As insurance companies exponentially migrate towards digital channels to offer new products, they also become prone to cyberattacks. The increased cyber-risks along with some organizations’ inexperience at dealing with these challenges calls for increased investment in secure IT systems.
The insurance industry can be an enticing target for cybercriminals. A data breach at health insurance firm Anthem, Inc. in 2015 led to 80 million company records, containing policyholder information, being stolen.
That is why insurers need to be proactive and strategic when it comes to cybersecurity. Cybersecurity is thus a technology trend that will remain relevant in 2021 as well.
Strategic investment in the key technologies shared in this article can help insurance companies become more customer-centric, reduce costs, and achieve exponential growth.
In case you’d like some help in technology implementation, Benchmark IT could help.