The insurance industry is one of the most fundamental industries in the world. It’s a risk management tool that has been around for centuries, and it’s only recently that we’ve seen a digital transformation in this industry. In this blog post, we will explore the concept of digital insurance and how it can be used as a bottom-up approach to manage risk. We will also discuss the benefits and challenges of this approach, as well as some of the key players in this space.
Digital insurance: Why not all technologies were born equal
Digital insurance is a rapidly growing industry that offers many advantages over traditional insurance models. However, not all digital insurance technologies are created equal. Some have limitations that may make them less effective for certain types of risks.
For example, telematics-based insurance relies on monitoring devices to track driving behaviour. This data is then used to price policies and calculate discounts. While this type of insurance can be very effective at reducing risky driving behaviour, it is not well suited for other types of risks such as weather-related damage or accidents caused by mechanical failures.
Similarly, blockchain-based insurance has the potential to reduce fraud and improve claims processing. However, the technology is still in its early stages of development and has yet to be proven on a large scale.
To be sure, there are many different types of risks that digital insurance can cover effectively. But it’s important to understand the limitations of each technology before choosing a policy. Otherwise, you may end up with a coverage that doesn’t meet your needs – or worse, no coverage at all.
Leverage digital insurance technologies for added value
Digital insurance technologies can help create value in a number of ways. They can help improve customer engagement, lower costs, and increase Efficiency.
First, digital insurance technologies can help improve customer engagement. By making the customer experience more seamless and efficient, customers are more likely to stay with a company and continue doing business with them. There are a number of ways to do this, such as automating the claims process or offering mobile apps that allow customers to manage their policies on their own time.
Second, digital insurance technologies can help lower costs. Automation can help reduce errors and save time, which leads to cost savings. In addition, by engaging customers directly through digital channels, companies can save on marketing and advertising costs.
Finally, digital insurance technologies can increase efficiency. For example, telematics-based pricing models can help identify high-risk drivers and price premiums accordingly. This helps to ensure that resources are used efficiently and that premiums reflect actual risk.
Long-term: Technologies for transforming insurance business models
The insurance industry is under pressure to transform its business models in the face of digital disruption. A recent study by Boston Consulting Group (BCG) found that insurance companies must adopt new technologies and business models to remain competitive.
There are a number of emerging technologies that have the potential to transform the insurance industry, including:
- Blockchain: Blockchain technology could help insurance companies reduce fraudulent claims and improve customer trust. Blockchain is a distributed database that allows for secure, transparent and tamper-proof transactions.
- Internet of Things (IoT): The IoT refers to the growing network of physical devices that are connected to the internet. Insurance companies can use IoT data to better assess risk and offer more personalized products and pricing.
- Artificial intelligence (AI): AI can be used for tasks such as fraud detection, claims processing and underwriting. AI can help insurance companies improve customer service and operational efficiency.
- Big data: Big data analytics can be used to identify trends, optimize pricing and underwriting, and personalize products and services. Big data can also help insurers better understand their customers’ needs and preferences.
Digital insurance policies are underwritten by assessing the real-time risk of the underlying assets, rather than by relying on historical data. This is made possible by the ever-growing proliferation of internet-connected devices, or “IoT devices”. By 2020, it is estimated that there will be over 26 billion IoT devices globally.
IoT devices are constantly collecting data about their surroundings and sending it back to the cloud. This data can be used to assess the risk of the asset in real time, allowing for more accurate insurance premiums. For example, if a home is fitted with IoT sensors that detect smoke, water leaks, or intruders, then the risks of those events occurring can be accurately assessed and priced into the insurance policy.
IoT devices also allow for faster claims processing as all of the necessary data is already collected and stored in the cloud. This data can be used to quickly and accurately assess the damage caused by an event, meaning that claims can be paid out much faster than traditional insurance policies.
Telematics is the combination of telecommunications and informatics. It’s the technology that underpins many digital insurance initiatives, particularly usage-based insurance (UBI).
In simple terms, telematics refers to the collection and analysis of data from a vehicle. This data can be used to track driving behaviour, such as braking, acceleration and speed. It can also be used to monitor other aspects of a vehicle’s performance, such as fuel efficiency.
Some insurers offer discounts to policyholders who install a telematics device in their vehicle. The thinking is that drivers who are aware of their driving habits are less likely to have an accident.
There are a number of different telematics devices on the market, ranging from simple dongles that plug into a car’s diagnostic port to more sophisticated devices that include GPS tracking. Some insurers will provide a discount just for having a device installed, while others will base the discount on the data collected by the device.
Installing a telematics device is just one way to get discounts on your car insurance. Many insurers also offer discounts for things like signing up for paperless billing or taking a driver safety course.
AI and ML
Digital insurance is re-imagining how insurance works from the bottom up by turning to technology for new answers. In particular, the application of artificial intelligence (AI) and machine learning (ML) is providing some interesting new possibilities for the industry.
AI can help insurance companies in a number of ways, from reducing fraudulent claims to improving customer service. For example, AI can be used to identify patterns in data that may indicate fraud, such as unusual claim activity or inconsistency between data points. AI can also be used to automate customer service tasks, such as responding to common customer inquiries or providing personalized recommendations.
ML, meanwhile, can be used to more accurately price policies and predict risk. For example, ML can be used to analyze data on past claims and identify patterns that may indicate future risk. This information can then be used to adjust premiums accordingly. ML can also be used to segment customers into different risk categories, which can help insurers better target their marketing efforts.
Digital insurance is still in its early stages, but the potential applications of AI and ML are already beginning to transform the industry. As these technologies continue to develop, we can expect even more innovative and effective solutions to emerge.