Using digital technology to lower risks; the new age insurance

Digital Technology and Insurtech

Digital Technology is supporting the upgrading and transformation of the fundamental insurance infrastructure across the globe

Just like many other industries that have undergone a cultural shift with advancements in  breakthrough technologies like the wearables, sensors, telematics, Internet of Things (IoT), digital platforms, blockchain and artificial intelligence the insurance industry too is slated to change the way it functions in the near future. Amidst rising customer expectations, the number of tech-savvy customers who want fingertip access to information and tools that allow them to analyze options and purchase products through a variety of channels is also increasing. Consequently, the insurance industry too is witnessing a power shift from sellers to buyers. However, the traditional insurance products are homogeneous and do not sufficiently meet customer demands.

Insurance has traditionally suffered from a lack of customer touch points and policyholder engagement 

Traditionally, the insurance has been a low customer engagement model with the insurer-customer interaction being lower than any other industry. As a majority of business is intermediated and the end service is delivered by service providers like hospitals in case of health insurance and not directly the insurers themselves, many insurers have limited opportunities to interact with their customers. Less customer touchpoints has been one of the biggest challenges for insurers to gain insight into customer needs and to use such insights to customize products. As per a survey done to understand the extent of customer-insurer interactions, the results were dismal. The surveyed customers reported varying levels of interaction with their insurers, 44%  customers had no interaction with their insurers during the prior 18 months. While getting a higher frequency of interaction with customers has been a big challenge for insurers, the digital age has brought countless opportunities for frequent touch points between insurers and customers. The same survey revealed that 80% of the customers were willing to use digital and remote channel options for different tasks and transactions.

Despite its obvious benefits, adoption of digitization in the industry has been slow as compared to other industries primarily because of insurance being a tightly regulated industry. Price transparency and lower barriers to entry are increasing competition and creating products out of what used to be core value proposition is a challenge.

Data technologies like artificial intelligence, machine learning, blockchain will be the technological foundation for new-age insurance 

As data technology deepens, the very nature of risk is getting transformed. Risk management being the core element of the insurance industry’s business is transforming as innovative ways to create, capture, and analyze data that is valuable to insurers are emerging. Real-time customer data can now be non-intrusively and automatically acquired using newer digital sources thereby, helping insurers better estimate and manage risk. Insurers now have opportunities to expand insurability and underwrite policies that would have been considered non-profitable in the past, in absence of reliable data.

For instance, insurers can now measure risk behaviour of policyholders more accurately by acquiring personalized and real-time customer data using wearable devices and sensors such as activity monitors related to the health of their policyholders. As large amounts of data pertaining to personal lifestyle and exercise habits, and digital biomarkers like heart rate and blood pressure become available, insurers can harness the potential of new age technologies like artificial intelligence and machine learning to transform the way in which health risk is assessed and underwritten. As health care becomes more predictive, preventive and personalized, insurers too can incentivize policyholders to adopt healthy habits and design personalized insurance products. With improvisation in technology for prevention, early diagnosis, and treatment improvement, policyholders can be expected to become healthier.

[Read how Wellthy Therapeutics help insurance industry achieve better claims control]

Insurtech is empowering the insurance industry to modernise and upgrade it’s traditional operations

With the rise of insurance technology or “insurtech” a subset of financial technology (fintech); the way the insurance industry has traditionally operated is changing rapidly. Insurtech applications are specifically designed to improve the operational efficiency and efficacy of insurance companies. Even though technology in the insurance industry is obviously not a new concept, but the main difference lies in the ability of insurtech to bring innovation closer to the insurers by making use of capabilities like:

  •   Artificial intelligence
  •   Drones
  •   Internet of Things
  •   Machine learning
  •   Smartphone applications

One of the most important reasons for the rapid rise of insurtech is artificial intelligence and machine learning-powered apps as they can process massive amounts of data that is imperative to improve efficiency and effectiveness. Personalised and more small business policies, and customer-facing applications are all some of the applications of insurtech. Insurtechs have demonstrated benefits in all major areas of insurance products and services, that includes marketing and distribution, claims cost management and underwriting. In fact even intermediaries like agents and brokers too expect better data and tools to be able better serve customers and compete for new business.

As digital technology advances, insurers have newer opportunities to bring in innovative insurance solutions as well as greater opportunities for data collection that helps in better risk identification and taking mitigation measures.

Value generation through insurer- digital solution providers collaboration

With the innovation that they have brought to the sector, incumbent insurers around the world have acknowledged the new partnerships models with digital solution providers to be a valuable opportunity. In fact, as per an analysis 44% of insurers across the world have taken measures to pursue digital initiatives with start-ups from the insurance industry and more are on their way and 81% of insurers acknowledge that technology has become an inextricable part of the human experience.

One of the most stark examples of the way technology can impact insurers is the role of digital therapeutics or DTx. Treatment with pills is not sufficient anymore; what matters are the clinical outcomes. Getting to know the patient, especially the lifestyle habits, enables better treatment options in patients with chronic diseases. Validated digital solutions and data can help patients, providers and insurers to be more in control of the person’s health and disease.  Therapeutic interventions with AI enable digital therapeutic technology to have a proven impact on positive outcomes of policyholders with chronic diseases, thereby reducing the frequency and duration of hospitalization and minimizing claim costs for insurers who have partnered with DTx companies.

Expanding insurability with real-time data

By expanding consumer interaction, technology can improve customer satisfaction in addition to improve pricing, risk selection and overall efficiency of insurers’ operations. Data technology in particular can provide newer, innovative ways to capture and analyse data needed by an insurer. Availability of real-time data specific to a customer can allow insurers to offer not only personalised premiums but also expand insurability. For example, pre-insurance medical check-up tests provide only a point view of a person’s health status, but if an insurer had longitudinal data available about a person’s health and lifestyle, insurers can measure risk more accurately, and thereby provide more customer specific policies. This allows insurers to manage their risks well instead of being averse to it.

Reference
  1. 1. Insurance Technology Trends 2020 | Accenture. (2020). Retrieved January 12, 2021, from https://www.accenture.com/us-en/insights/insurance/technology-vision-insurance-2020
  1. How digital therapy benefits patients, providers, and the health ecosystem. (2019). Retrieved January 12, 2021, from https://www.ibm.com/downloads/cas/DO1REYRX
  1. Innovation In Insurance: How Technology Is Changing The Industry. (2016). Retrieved January 12, 2021, from https://www.iif.com/portals/0/Files/private/32370132_insurance_innovation_report_2016.pdf
  1. The promise of digital therapeutics. (2020). Retrieved January 12, 2021, from https://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/the-promise-of-digital-therapeutics
  1. Five tech trends that will define the future of insurance. (2019). Retrieved January 12, 2021, from https://www.ey.com/en_in/insurance/five-tech-trends-that-will-define-the-future-of-insurance