Fintech’s Impact on the Insurance Industry

Exciting innovations in the fintech space have changed the way we bank, invest, and make payments. From contactless payments to digital currencies to investment apps, these thrilling fintech developments are being discussed every day. Though fintech adoption in these sectors remains on the rise, one of the fastest growing, impressive yet not widely known fintech innovations are in the insurance sector.

Enhanced risk assessment, significant financial inclusion, cost efficiency, improved operational efficiency, and exceptional customer experience are some of the notable developments in the insurance space as a result of fintech innovations. 

Let us understand the ways or areas in which various cutting-edge technologies and contemporary business models are transforming the insurance business landscape.

• Distribution

Distribution plays a crucial role in the success of insurance companies. Traditionally, these companies relied on face-to-face distribution channels like individual agents, brokers, corporate agents, and bancassurance channels to cover the market. Though this distribution channel still remains the main distribution channel in a larger insurance market, there is a clear shift towards digital distribution channels over the past few years that mainly serves the untapped market and thereby helps in boosting penetration. 

Many well-known insurance players have adopted digital distribution channels and the emerging innovative InsurTech companies are following various new distribution models. 

As digital experience makes it convenient, friendlier, and simpler for customers, the adoption of digital distribution channels has become an automatic process for insurance companies. 

As per the report from Allied market research, the global online insurance market was valued at $53.2 billion in 2021 and is projected to grow at a CAGR of 20.2% during 2022-2031 to reach $330.1 billion. With the changing consumer behavior, FinTechs in insurance are interacting with consumers digitally, applying recommendations, creating web stores tailored to customer needs, providing tools for customer insights, and giving them data-driven investment insights. 

The emerging distribution models in the InsurTech space are leveraging technological innovations like artificial intelligence, machine learning, etc. A distribution model like assisted distribution is a great example of the integration of traditional face-to-face channels and today’s digitally-driven channels using cognitive technology. 

• Product

With the changing need of customers, new entrants, and fintech companies in the market are launching innovative tech-driven insurance products across the subsects. In this transformative age, this industry is constantly under pressure to change. Addressing emerging needs and expectations such as the need for real-time protection, and hyper-personalized insurance coverage is the only way for these companies to stay ahead of competitive threats. 

The adoption of digital innovations like artificial intelligence, machine learning, blockchain, etc has become important for fintech insurance startups to address the new risks with product innovation. 

For example, telematics insurance is one of the new product innovations in this space. In this innovative car insurance product, a telematic box having a motion sensor, GPS system, analytics software, and a SIM card gets directly installed into a car. This device tracks the location, speed, breaks, time, accidents/crashes, and other data related to driving, and the data is transmitted digitally to the insurance company for analysis. As the insurer has every data, there can be better risk management. 

Technology in fintech and insurance is paving the way for many such product innovations. 

Let us look at some of the innovative products by the leading InsurTech companies: 

•  Manypets, a UK-based Insure Tech company that offers tailor-made pet coverage uses unnamed search data to identify customer expectations and needs.
•   Livwell, a blockchain-based Asian InsurTech company offers bite-sized, low-cost health and term insurance for Gen-Z and millennials.
• Hippo, a US-based fintech insurance company offers customized property and casualty insurance coverage using satellite images, public data, and smart home devices. 

• Pricing

Traditionally, the insurance industry used impersonalized or generic datasets for risk assessment. However, the risk assessment and the pricing model have changed now with the ever-evolving technological innovations. 

With endpoint devices, the Internet of things, and social media, fintech insurance companies can now access specific data helping them to design high-personalized, cost-efficient coverage for their customers. Many insurtech companies do pricing based on specific data accessed through social media, smart devices, telematics, etc. 

As per the 2021 survey by Capco, titled ‘’ The Future of Insurance: Personalized, Digitalized & Connected’’, 72% of customers are willing to share their personal data for premium reduction. Customized policy pricing is a new trend in the InsurTech space. 

• Claims management

Traditionally, this industry followed a laborious process for claims management. Document scrutiny, review, and the decision to award the compensation for each claim involved manual intervention. Automation of this claims management process is a result of fintech innovations in insurance. Here are the trends and the end-to-end integration in automated claims management. 

Now, insurance fintech startups follow digital claims management, resulting in reduced processing time and claims cost.The digitalization of the claims process has the potential to boost efficiency and build customer trust.

Here are a few examples of insurtech companies that offer digitized claims management.

• A leading insurance tech company Lemonade processes all the claims on the digital platform using a chatbot-based First Notice of Loss (FNOL) system and makes pay-out instantly.
• Clearcover, an auto insurance company has implemented a cloud-based claims management platform that allows customers to get their eligible claims settled within a few minutes just by uploading pictures and answering a few questions.

• Underwriting

Traditional insurance underwriting is a tedious and slow process. Fintech insurance companies have made it more efficient by leveraging the latest technologies like artificial intelligence. Automation of the underwriting process has resulted from the fintech innovations in the insurance space.

These InsurTech companies make use of algorithms to evaluate the risk and generate quotes in no time based on customer data and records. Data can also be obtained from various sources using the technology to assess the risk efficiently. By minimizing human intervention, these technological innovations adopted by insurance fintech startups have removed the bias and made the underwriting process efficient. 

Here are a few insurtech companies that have digitized their insurance underwriting.

•   Zego, a UK based innovative insurtech company that offers motor insurance policy and is licensed to underwrite its insurance products uses real-time telematics data insights.
•   Coterie, a small business insurance provider offers its brokers a fully digital underwriting engine. It offers data-driven underwriting based on the data collected from the public platform.

Fintech innovations are rapidly revolutionizing every area of the insurance industry and have changed the way the entire industry operates. Widespread adoption of these technological innovations can bring more changes to the industry and boost its growth.