February 5, 2019
Are Insurers at Risk of Becoming Obsolete?
Most insurers understand that the industry has a looming obstacle to overcome but are not doing anything to prepare for this shift.
Most insurance companies understand that the industry has a looming obstacle to overcome, but they are not doing anything to prepare for this shift.
A recent PricewaterhouseCoopers survey suggests that 74% of insurers view financial technology innovations as a challenge. While they might understand the potential of fintech, only 28% of industry players are working to collaborate with fintech companies. There is a definite disconnect between thoughts and actions.
Moreover, a paltry 14% of insurers participate in accelerator and incubator programs, where potential is ripe for partnerships. As innovations ranging from AI to the sharing economy steer insurance toward disruption, the companies that drag their feet ultimately risk being left behind.
A perfect combination of technology and data certainly has the potential to revolutionize insurance. In the coming years, leaders in insurance will lean on technology like bots and AI to help the industry flourish. Because insurance already involves so many algorithms, underwriting will soon reach levels of precision that were hard to imagine only a few years ago.
See also: How to Embrace Insurtech Culture
Cape Analytics, for example, is using technology to spot high-risk roofing in a sea of aerial images. Company data indicates that homes in the U.S. have an 8% likelihood of having a roof of either poor or severe quality. This is huge news for insurers — when a building has a low-quality roof, the possibility of a claim is 50% higher, and the resulting payout is generally larger. When insurers can gauge roof conditions in advance, they are in a better position to provide an accurate quote and avoid unexpected losses.
The insurance industry has offered more uncertainty than peace of mind in years past, but innovation and digitization have the power to change that. Regardless of how this change happens, future insurance industry disruption will revolve around customers.
Digitization in consumer finance has given industry players a wealth of data, but this evolution has yet to make a real difference in the lives of consumers struggling with the same financial problems that have plagued generations. New payment methods, robust financial applications, and a variety of shiny gadgets are great, but insurtech must tackle consumer concerns directly if they want to become true customer advocates.
Technology has already left an indelible mark by making insurance cheaper, but cost savings are only the tip of the iceberg. Insurtech can make insurance products more attractive and easier to understand, which will increase the likelihood that customers recommend these products to friends and family. Improving experiences at an individual level might seem minor, but it has the added benefit of ensuring the broad swathe of underinsured customers in Europe and the U.S. are better-protected against risk.
See also: Finding Value in Insurtech (Part 1)
Running toward insurtech rather than away from it will help companies cater to underserved markets and create disruptive offers. Many insurance companies are calling on insiders with industry knowledge — whether they are underwriters, actuaries or claims professionals — to become more involved and identify meaningful opportunities to solve problems. Instead of trying to catch up to emerging trends, insurers can use the potential of insurtech to leapfrog their competitors.
With new technologies like the autonomous vehicle, medical advances and robotics becoming a viable reality, disruption in the insurance space is inevitable — even if it comes from outside of the industry. It is time for insurance executives to think ahead and embrace innovation as the heart of their strategies while determining how extensively they would like to work insurtech into their operations. The insurtech revolution is coming, and the companies that truly embrace this change will be poised to make the most of future disruptions.