While many technological innovations in insurance have been in the works for some time, COVID added pressure on insurance companies to make additional adaptations as part of business continuity. These innovations are mostly coming from various InsurTech startups, smaller companies typically founded after 2010. These companies aim to provide wider, more customizable access to consumers in a rapidly evolving market while improving the businesses’ bottom lines that fund them.
The Willis Towers Watson Q 2020 InsurTech briefing showed a recovery in funding levels after a drop-off Q1 of 2020 as investors reevaluate the market as a whole and adapt to the new remote economy. This recovery will provide some relief to firms that were previously unable to raise enough capital, as Willis noted that many of these companies are yet to turn a profit, and funding remains low compared to the record amounts of funding the InsurTech industry received in 2019. Ultimately, insurance companies investing in InsurTech must ask and answer the question as to whether or not the cost of investing in InsurTech will allow them to improve their bottom lines through safer underwriting or better claims management.
In addition, new companies hoping to enter the insurance space leveraging technology have been doing so by flooding the market with low cost or highly customizable products. This expansion-by-volume strategy could cause problems down the line if these companies cannot keep up with the regulatory environment or as losses continue to develop alongside their underwriting. Ultimately, both of these trends have the potential to both threaten the long-term survivability of these young companies and harm consumers if measures are not taken to mitigate them.
Automotive has traditionally been the engine that moves InsurTech forward, and despite COVID slowing things down, most of the innovation continues to happen there, although the same techniques are also being applied to other fields. Some of the main drivers to highlight here are technology’s role in gathering, transmitting, and processing information. The idea of using apps to monitor driving habits, such as speeding or phone usage behind the wheel, has been floating around, with insurance companies offering financial incentives to people who subscribe for their monitoring programs. While this mostly impacts underwriting, the effect also bleeds into claims as monitoring could incentivize drivers to make smarter decisions.
Another one of the most customer-facing pieces of InsurTech rising to prominence is claims management and prevention, both in auto and homeowners insurance. Mobile claims submission is becoming more popular, as claimants can send information to their carriers as soon as an accident happens, allowing for faster processing, this does come with additional fraud risk. Other monitoring can also be put in place both in vehicles and in houses to better detect potential claims. An example of this is the company Flo Technologies that has been partnering with P&C insurers to install a smart device into policyholder’s houses that can track abnormal water usage or even allow policyholders to shut down the water if they suspect that there is a leak, potentially preventing or mitigating claims losses.
The above device is just one component of Internet of Things, or IoT community that is central to the increased access of technology, and thus, one of the main drivers of InsurTech. IoT refers to smart devices that are now connected to the internet, such as cars, coffee makers, or credit cards. This growing trend in consumer devices allows for an unprecedented amount of data to be collected but also comes with a series of challenges to the insurance industry, according to WTW. It is estimated that 95% of all data generated in all human history was generated in the past three years due to the increased prominence of smart devices, and the amount of data creation is expected to continue growing exponentially. While increased access to data can allow for better decision making, it is increasingly challenging for companies to decipher it due to the sheer volume, making the ability to draw beneficial conclusions more difficult. Property & casualty insurance companies are also becoming increasingly concerned with the cost of replacing these more expensive devices.
InsurTech is still one of many massive works-in-progress as the insurance industry continues to digitalize. This trend is inevitable, and those who do not adapt risk being left behind. But there is always both risk and opportunity in the unknown. This is a new frontier to learn to navigate, but whether you are a new player in the insurance industry or an older one working to stay on the cutting edge, we must all be mindful of the ever-changing landscape that surrounds us.