Insurtechs – Championing Value In The Insurance Sector

If life is a series of peaks and troughs, then insurance is the trampoline at the bottom of the trough that helps us bounce back.

In its simplest form, insurance primarily serves as a means to protect oneself from financial loss. It is a form of risk management, used to hedge against the risk of a contingent or uncertain loss. Dating back to the 2^nd millennium BC, in its earliest form, it was used by Chinese and Babylonian merchants to limit the loss of cargo in the course of transportation. While the sector has witnessed a tsunami of change since then, its core purpose of providing a hedge against the risk of loss, whether life or property, endures.

Charles Darwin said that it is not the strongest of the species but the most adaptable of the species that survives. Over the years, the insurance industry has successfully responded to the changing environment, as well as the changing needs of the customer. Previously, players in the insurance space created generic products that were available to customers at a standard price. However, customer needs have now become more nuanced while customers themselves have become more discerning. This has perpetuated a shift towards product customisation and put the spotlight on user experience. At the same time, it has underscored the need to offer competitive pricing that accurately reflects an individual’s risk profile.

The insurance sector in India is currently going through a metamorphosis and the single biggest factor influencing this change is technology and insurance firms (insurtechs) that are leveraging technology to create, distribute and administer insurance solutions in a cost-effective and efficient manner. Insurtech firms lie at the confluence of insurance and technology and are well positioned to create more intuitive and customised products for the average individual looking to purchase an insurance policy.

Using new age technologies like artificial intelligence, advanced analytics, blockchain technology, Internet of Things (IoT) etc, insurtechs are adding value across the insurance value chain. Some of the key areas where insurtechs are enhancing value:

Ø  Underwriting - The main goal of an insurer is to undertake the risk associated with an event in exchange for a fee. Therefore, the ability to assess this risk forms the backbone of the insurance industry. The use of advanced analytics and IoT can help insurers capture the idiosyncratic risk of an individual/event and thus better assess the probability of loss. For example: in the case of vehicle insurance, data related to the average speed at which a person drives a car or the number of speeding tickets that he/she has received, could prove very valuable in assessing the probability of an accident and therefore the risk associated with that policy.

Ø  Pricing - With the ability to better assess an individual’s risk comes the ability to tweak premium pricing that can accurately capture the risk associated with a particular policy. Additionally, the use of cloud computing can lower operational costs which can directly impact the cost of policies.

Ø  Claims - The true test of an insurance company lies in its claim process. A simple and efficient claims process directly adds to the credibility of an insurance company. Insurtechs can help address this issue by using chatbots powered by AI to interact with the customers and verify data to expedite the claims process.

Ø  Buying Process - The purchase journey in case of traditional insurance is complicated and involves a multi-step process. Insurtechs, on the other hand, employ technology to communicate with the customers and make it extremely simple and quick for them to buy an insurance policy. Since verification is powered by technology, the turnaround time in accepting a policy is significantly shortened.

These are just a few of the areas where insurtechs are adding value. Insurtechs are helping insurers adopt a more customer centric perspective and design solutions that meet the specific needs of their customers. Innovative technologies are adding a new dimension to the insurance business. For the sector to grow and for customers to achieve maximum value, it is imperative that all stakeholders work in tandem towards creating an environment that is conducive for innovation and growth.

The author is Co Founder, Turtlemint.