Early adopters will see the greatest profits
Technology has advanced so much over the past five years that it is impacting almost every aspect of our life.
The above statement was the basis of the preamble of a report by Klaus Schwab, Executive Chairman of the World Economic Forum, on the Fourth Industrial Revolution. While the direct effects of technological change has not impacted the insurance industry in a significant way up to now, its presence is growing every day.
A recent report by the International Association of Insurance Supervisors (IAIS) highlighted this in great detail, pointing out some of the push and pull factors of the growing influence of InsurTech.
The great push
The IAIS describes a push factor as factors that impact the supply of new technology available for insurers and policyholders. These are the deliberate actions by insurers who feel that an early adoption of InsurTech will greatly benefit their policyholders.
The report notes that to date, technological investment has focussed on the larger banking sector by assisting ways to enhance payment services. From an innovation perspective, there is very little impact of this technology on the insurance industry. However, it has created a heightened level of investor and technology company engagement towards the use of new technologies within the financial sector. This in turn has increased the level of capital investment in this sector more broadly.
Intellectual power
Another push factor that is influencing insurers is the increased intellectual firepower that InsurTech has to offer. Entrepreneurs are expanding their opportunities; many start-ups in the insurance ecosystem are founded by entrepreneurs seeking to find a lucrative business opportunity for their innovations. The report adds that as the banking industry becomes more competitive, some see insurance as the new frontier.
In addition, many entrepreneurs are seeking to exploit what they see as weaknesses in the incumbents business models; for instance, legacy IT systems and inertia in responding to changing consumer demands. The shared economy is playing a major role in this.
The last push factor is the increased availability of data and analytical tools. The internet of things (IoT) and wearables have allowed firms to capture more information on individuals than ever before.
This factor combined with increased computing power and increasingly smart algorithms is allowing firms to improve forecasting for a wide range of applications including insurance.
Demanding clients
The IAIS defines a pull factor as factors that impact clients demand for new products. While many pull factors exist, there are some which are more important than others.
Societal changes impacting the type of products and how they are consumed are the most important factors. An example of this exists when dealing with Millennials. Catering for Millennials potentially requires consideration for an increased appetite for mobile usage. Other factors that needs serious consideration when it comes to dealing with Millennials is the influence of the shared economy, self-management, and generally simplified on-demand type products that are possibly embedded within a service offering.
Building a competitive advantage
Competitive advantage when it comes to meeting client demands is something that insurers – and brokers – seek out on a daily basis. Many insurers and brokers view technology as a way to expand client interaction beyond the once-a-year renewal request notification with a view to improve customer loyalty. In addition, insurers and brokers are also investigating the use of new technologies to improve pricing, risk selection and detection of fraud in claims settlements.
Back office efficiency is one of the factors that can directly impact client satisfaction. A bad claims experience is no insurer’s friend. In many markets worldwide insurance is a highly competitive industry; consequently, many insurers and brokers are seeking ways to improve the efficiency of their back office operations to reduce costs.
Editor’s Thoughts:
Technology was always going to have a major impact on the insurance industry. While some companies see it as a disruptive force, others are embracing it. Canadian economist JK Galbraith once said that when faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof. Early adopters of InsurTech will be the ones to see success. There is no disputing that. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
