If there was ever a time to be excited about the insurance and financial services industry, it has to be right now. With the influence of FinTech increasing by leaps and bounds across the globe (Details: How finance is being taken over by tech), its close cousin InsurTech has been witnessing a very similar transformation.
 |
| (Image Courtesy: startupbootcamp.org) |
Although the metamorphosis phase for InsurTech is expected to last quite long (till somewhere around 2025 according to current forecasts), there is a consensus among the industry experts that technology is going to be the main driving force for the insurance industry of the future. So if I were to identify three main technologies which, in my opinion, will lead the industry in the right direction, what would they be?
1. Internet of Things
 |
| Internet of Things (Image courtesy: insurancenetworking.com) |
Imagine a world where data about activities such as your driving history, health condition and usage of home appliances were recorded. This data were then shared with insurance firms so that they could not only provide you with a customized quote exactly as per your lifestyle, but also reward you for maintaining a less risky way of living. That is the Internet of things (IoT) in a nutshell.
With the advent of big data analytics, it was only natural for firms to make use of IoT for better underwriting decisions, real-time monitoring and elimination of documentation for faster processing of claims. Although I mention just two main streams of IoT which have seen a lot of disruption in the past few years, the possibilities under the IoT umbrella are limitless.
- Telematics: In collaboration with the automotive industry, this is a huge step towards promoting road safety and safer driving habits. The collection of real-time data will enable the insurers to provide better-suited plans to their customers. The type of data recorded will include things such as hours driven, distance covered, engine diagnostics, driving behavior and terrain driven on. In the event of a loss, it would be much more convenient to determine the cause of the accident and process the claim payouts accordingly.
- Wearables: With the overall population becoming more and more health conscious, health monitoring gadgets such as Fitbit, Jawbone and the Apple watch have been rapidly gaining ground. As the market penetration of these devices increases, insurers are looking to use the data collected by these wearables to provide a more personalized service to each and every customer. Apart from promoting healthy living, these devices can also be used to send payment reminders and other communication.
2. Blockchain
Blockchain has to be one the most revolutionary technologies ever in the world of finance. It completely redefines the way transactions should take place in the finance world. The technology is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically.
I believe that Blockchain will play a very crucial role in transforming and reshaping the financial services industry because of its below mentioned attributes:
- Decentralization: Blockchain presents a totally new way of thinking about transactions. By introducing the concept of distributed ledger it eliminates the need for a third party/trust (central ledger) for maintaining the records. This gives the power directly in the hands of the users, reduces the costs of running the system and increases the overall efficiency of the financial system.
- Transparency: Since the ledger is verifiable by all the nodes of the blockchain environment, all transactions have to be in sync. In other words, no single node/person can manipulate or alter the data. This crowdsourced security promotes openness, thereby leading to a highly transparent system, and can remarkably reduce cases of corruption and financial frauds.
In fact, if we look at the investment banking industry, according to a recent analysis by Accenture and McLagan (Banking on Blockchain), Blockchain technology could save more than $8 billion a year in total for the eight leading investment banks considered in their study. I believe that we can expect similar results for the insurance industry as well.
Blockchain has to be one the most revolutionary technologies ever in the world of finance. It completely redefines the way transactions should take place in the finance world. The technology is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically.
I believe that Blockchain will play a very crucial role in transforming and reshaping the financial services industry because of its below mentioned attributes:
- Decentralization: Blockchain presents a totally new way of thinking about transactions. By introducing the concept of distributed ledger it eliminates the need for a third party/trust (central ledger) for maintaining the records. This gives the power directly in the hands of the users, reduces the costs of running the system and increases the overall efficiency of the financial system.
- Transparency: Since the ledger is verifiable by all the nodes of the blockchain environment, all transactions have to be in sync. In other words, no single node/person can manipulate or alter the data. This crowdsourced security promotes openness, thereby leading to a highly transparent system, and can remarkably reduce cases of corruption and financial frauds.
In fact, if we look at the investment banking industry, according to a recent analysis by Accenture and McLagan (Banking on Blockchain), Blockchain technology could save more than $8 billion a year in total for the eight leading investment banks considered in their study. I believe that we can expect similar results for the insurance industry as well.
3. AI Driven Automation
Similar to the trend in other industries, a lot of jobs in the insurance industry will soon be automated. The introduction of chatbots and automated insurance agents is just the beginning. Processes such as underwriting, claims processing, and financial analytics seem to be the next ones in the pipeline. This would not only create a highly efficient framework, but also eliminate the chances of a human error in the insurance value chain.
Insurers are also considering the possibility of clubbing multiple technologies to provide an entire ecosystem to the customer. This will enable the insurers to push package deals to their clients and lead to a win-win situation for both the insurer and the insured. The much needed evolution of the insurance industry has just begun. Looking at the endless possibilities that these technologies present, the insurance industry of the future is already starting to look super fascinating!
