The insurance industry is changing for good and for the better.
Insurers have been around for a long time, a really long time in fact. The first insurance company, The Friendly Society, was established in South Carolina USA way back in 1735, making the insurance sector an almost 300 year old institute.
With 300 years of tradition in processes and operations, the insurance industry, like many other well-established sectors, has been slow to adapt to technological advancements and innovation over the years. Strict regulatory restraints have further made it difficult for insurance institutes to keep up pace with other sectors that have been making leaps and bounds in innovation.
However, today this is rapidly changing as insurers are making strides with innovation like never before and the emergence of the Insurtech sector is evidence of this shift.
The Innovation Age
The last couple of decades have been marked by a sharp rise in innovation.
What has been driving this?
In one simple word: Data.
For many years now, companies have been gradually amassing vast amounts of data on consumers, while skilled data scientists have tirelessly worked to develop intelligent algorithms and models aimed at discovering innovative ways to utilize this data to enhance products, streamline processes, and optimize operations. At the same time tech-adopting millennials alongside digital-savvy Gen Zeers have been creating significant shifts in the consumer space, demanding greater immediacy, personalization, and increased interactions across multiple channels, thereby making a strong case for data-powered solutions.
In the insurance industry, a new term has been coined to describe the use of technology to improve the way insurance is managed: Insurtech.
Insurtech is an area of innovation that has been growing rapidly in recent years, disrupting traditional insurance models and changing the way consumers and businesses think about insurance. Data analytics, artificial intelligence (AI), and machine learning technologies have played a pivotal role in improving and optimizing various aspects of the insurance industry, including claims management, risk management, and pricing.
Insurers have been making significant investments in insurtech. In 2011 investment in technology stood at $140 million, in 2013 this climbed up to $270 million. However, in 2015 investment reached a staggering $2.7 billion. During the same time frame, the top-performing insurtech startups progressed beyond the initial stages of seed and venture capital financing and secured more advanced funding.
Today, the insurtech market is valued at $16.6 billion and is expected to reach $165.4 Billion by 2032.
If these numbers are anything to go by, it is clear that insurtech is not only here to stay, but is here to dominate the industry.
The insurtech landscape
Startups have emerged as the trailblazers in the insurtech industry, both as providers of insurtech solutions and as new insurance providers. Startups have not only disrupted traditional insurance models but also created new avenues for growth and profitability in the sector, positioning themselves as key players in the insurtech ecosystem.
Lemonade, for example, has been defined as an insurance industry disruptor into space, providing a digital insurance platform that uses artificial intelligence and behavioral economics to provide renters and homeowners insurance.
Companies such as umAI, are leading the space of providing claim management solutions to leading insurers, offering solutions to help insurers automate claims handling and detect fraud with ease.
The insurtech industry offers significant opportunities for insurers; however, there are also a number of challenges that insurtech providers and insurers seeking to adopt insurtech solutions must be aware of. One such challenge is navigating the complex regulatory environment of the industry. Insurtech companies and traditional insurance companies are held to the same regulatory standards, and larger insurers adopting insurtech solutions could encounter greater examination from regulators.
In order for insurers to prepare for the technological changes ahead, global consultancy McKinsey recommends several key steps:
- The first step involves investing time and resources to gain a deep understanding of AI-related technologies to understand where and when disruption might occur.
- The second step is to develop a strategic plan that addresses all aspects of the business, including analytics, technology, talent, and culture.
- The third step is to create a comprehensive data strategy that focuses on both internal and external data sources.
- Finally, the fourth step is to invest in people and technology to create the right talent and technology infrastructure to enable the successful adoption of AI.
Over the last few years, the insurtech industry has been transforming the insurance sector, with a focus on making it more customer-centric, innovative and efficient. This sector shift has given rise to a phenomenon known as insurtech. Insurtech refers to a set of collective technologies driven by data analytics, AI and machine learning. These technologies have played a crucial role in helping insurers improve critical processes such as claims management.
In the space of insurtech, startups have been leading the way by disputing traditional insurance models through innovation. Established insurers have been keeping an eagle eye on the changing ecosystem and have decided to work closely with insurtech startups to help improve their operations and customer experience.
However, there are still many challenges the industry needs to face, including navigating the complex regulatory environment of the industry. With the right investment in people, technology, and strategy, insurers can prepare for the technological changes ahead and leverage the power of data to enhance products, streamline processes, and optimize operations.