The insurance industry has been plagued by slow growth for years—particularly in mature markets like the US and Europe—and has lagged behind the overall economy for a decade.
Fortunately, advances in technology are creating plenty of opportunities for growth. Can established insurance companies catch up? According to my research, 98% of the population will be, at minimum, digitally competent by 2025. However, of the top 100 established insurance carriers, only 2% have implemented a cohesive and truly innovative digital customer experience.
Adding to the challenge is an aging talent pool. By the end of 2018, 25% of professional staff are expected to retire, and by the year 2020, there are expected to be at least 400,000 open positions in insurance. Fewer than one in 20 young professionals are interested in a job in insurance, and most millennials are unfamiliar with insurance as a career path altogether.
As Forbes puts it, “The insurance industry has a ‘coolness’ problem.” Tech-minded millennials would rather work in Silicon Valley than Hartford, CT. The result is a huge talent gap that’s going to be tough to fill.
Already, a number of smaller players are driving the transformative disruption the industry desperately needs. They are leveraging technology in new ways—you may have heard it referred to as “InsurTech.” Almost $16 billion has been invested externally in InsurTech in the last five years alone, and GCA Global predicts that total InsurTech spending will exceed $50 billion by 2019.
A portmanteau of “insurance” and “technology,” InsurTech represents an amalgam of innovations: big data, RPA, AI, IoT, P2P, and blockchain. Though these buzzwords and acronyms likely sound familiar, they tend to be tossed around in strategy meetings without much insight into how they can actually be applied. So, what is InsurTech? Let’s take a closer look.
digital disruption in insurance: 6 ways InsurTech is changing the game
1. Big Data
Insurance has always relied on data to make decisions. What’s changing is the volume of information that’s available. Big data uses huge data sets—petabytes!— from networked home systems, telematics devices, and social media to construct to price, underwrite, and adjust claims, making it a big deal for underwriting insurance, especially life or property/casualty.
It’s also useful for customer relationship management. Analyzing data from your CRM can help you turn subjective opinions into actionable business intelligence and embed customer insights into decision-making across the enterprise.
2. Robotic Process Automation (RPA)
If you’re familiar with Microsoft Excel macros, then you already know the time-saving benefits of using computer code to perform rote or repetitive tasks. RPA takes it a step further, making it possible to automate rote tasks like data entry and digitize large volumes of paper documents.
Roboadvisors are an even more sophisticated example of RPA—these programs provide financial advice, such as where to invest and what lines of insurance to buy, based on basic profiles completed by the user.
3. Artificial Intelligence (AI)
AI uses code, big data, and Machine Learning techniques to underwrite, adjust claims, interact with customers, and provide oversight. Over time, as AI systems learn and improve, they can effectively remove huge chunks of manual labor, particularly on simpler tasks. As this technology continues to be refined, its applications are sure to grow.
4. Internet of Things (IoT)
Most people’s experience with IoT is limited to interactions with digital home assistants (Alexa, Google Home, etc.) and smart devices (such as “learning thermostats” and internet-enabled home security systems). In the insurance industry, however, IoT uses connected devices to do much more: report claims, provide immediate notice of loss, pre-pay claims, and enable usage-based insurance.
Metromile, a usage-based, pay-per-mile auto insurer, is one InsurTech disruptor that is using IoT to tailor insurance to individual risk. It offers a mobile app that can be integrated into a car’s data port to track mileage by driver and help owners understand how their driving and vehicle condition affect their rates.
5. Peer-to-Peer (P2P)
P2P networks are, essentially, collectives with like-minded interests that pool risk over the Internet. They’re generally smaller, and they serve the needs of a homogeneous group electronically. Some are MGAs, or “managing general agents,” which rely on a traditional insurer to handle the underwriting while they assume responsibility for attracting and pooling appropriate risks.
- Lemonade puts an additional twist on insurance by appealing to its customers’ social values. Initially launched as a service providing renter’s insurance in large urban markets, Lemonade donates leftover premiums to “causes you care about.” This social impact angle is particularly appealing to millennials.
- Slice targets the “shared economy” with its on-demand insurance model. As AirBnB, Lyft and Uber grew, a need for specific coverage at specific times emerged. Slice recognized that need and developed short-term insurance tailored specifically to those markets.
- Hippo took its lead from GenX’ers needs, offering homeowners insurance that is quick to quote, affordable and digitally convenient. Where standard offerings were limited—particularly regarding coverage for home electronics—Hippo expanded its coverage, helping customers protect the things they value most, from standard appliances to home stereos.
If you associate blockchain with bitcoin, you’re not alone. But blockchain’s application extends far beyond cryptocurrency. It is a distributed ledger technology that’s especially useful in situations that involve multiple third parties and numerous complex transactions requiring secure and transparent solutions. As you can imagine, insurance is a natural fit.
Rather than relying on a single database that is duplicated on multiple independently updated mainframes, blockchain distributes the database across permissioned hosts within a network so they can share data in real time. It’s much more secure than other technologies used today, because there’s no single point of failure and encryption can be handled by the user directly, rather than being shopped out to third parties.
The ongoing evolution of insurance
These innovations—and those still to come—represent enormous growth potential for the industry. Where, then, will insurers find talent to help them navigate this brave new world?
The on-demand talent marketplace is often a perfect fit, especially for industries that have a hard time attracting cutting-edge digital talent. BTG’s independent insurance consultants are in a prime position to help traditional insurers think more strategically about how to integrate technology into their businesses and position themselves for growth. Contact us to learn more.
Brian Kelley helps insurance companies develop winning growth strategies, from new products and profit pool analyses to due diligence and InsureTech solutions. A former Bain consultant and senior executive at Liberty Mutual, Brian has helped BTG clients explore Blockchain applications, analyze profit pools, and understand performance drivers.