Definition and Examples of Insurtech
What is Insurtech?
Insurtech can refer to any new technology introduced into the operations of insurance companies to save costs or streamline processes. It is a branch of financial technology (Fintech), which aims to improve processes and profits for financial firms. Like Fintech, Insurtech encompasses a wide range of technologies, making it difficult to pinpoint a single characteristic or application for it.
Insurtech may also refer to companies that produce insurance technology. Between 2010 and 2019 – which some consider nearly the first nine years of Insurtech – approximately $16.5 billion flowed into Insurtech startups.
How does Insurtech work?
Since Insurtech is new in definition, its applications are continuously evolving. In general, Insurtech simplifies and enhances internal operations, improves customer experience, and saves money for insurance companies.
Examples of how Insurtech simplifies processes include the use of chatbots and mobile applications. Insurance companies no longer need to employ customer service representatives to respond to customer inquiries. Many of these can be answered by chatbots that automatically respond to queries around the clock. In addition to streamlining the customer service experience, this also saves money for the company.
Enhancing the customer experience is also an Insurtech goal. Instead of needing to print copies of driver’s licenses and other paperwork, a customer can simply take a picture with their phone and send it through the app. This saves time and resources for both the customer and the company.
Types of Insurtech
Below are some common types of Insurtech that can be expected to be used by insurance companies. Some of these technologies may be surpassed by newer technologies, while others will evolve and remain an important aspect of Insurtech.
Artificial Intelligence
The term artificial intelligence (AI) refers to programs that can perform functions typically associated with humans, such as thinking and learning. Chatbots, which are computer programs that can communicate with customers verbally or via text, are examples of Insurtech AI.
Machine Learning
Another type of Insurtech is machine learning, which is a branch of AI. As its name suggests, machine learning is technology that enables machines to “learn” over time. It uses algorithms to simulate neural networks in the human brain. Machine learning allows computers to gain knowledge by extracting patterns from raw data rather than following specific instructions.
Insurance companies collect vast amounts of data, but companies that do not use Insurtech utilize very little of that data. Machine learning can enable insurance companies to use their data more effectively and extract valuable insights. Here are some ways that insurance companies (or are likely to) use machine learning:
- Risk modeling: Analyzing claims data to forecast future loss risks
- Demand modeling: Using mathematical models to estimate premiums and predict future demand for products
- Fraud detection: Identifying fraudulent behavior patterns using machine learning that human underwriters may not see
- Claims processing: Automatically reporting and processing claims
- Underwriting: Using machine learning to help underwriters analyze data gathered from applicants, detect errors, and verify accuracy
Internet of Things
Another type of Insurtech is the Internet of Things (IoT). This term refers to everyday devices (such as refrigerators and televisions) that connect to the Internet. An example of this is telematics, which involves the use of electronic devices in vehicles to collect, receive, store, and transmit data over a network. Many commercial companies that operate fleets of vehicles are equipped with devices that have GPS technology. These devices can be used to track vehicle locations and measure driving speed, braking patterns, acceleration, and other habits. Insurance companies for commercial vehicles can use data from these devices to offer discounts, improve safety, and analyze accidents.
Note:
Wearable technology, such as Fitbits and Apple Watches, is another example of the Internet of Things that can be used in Insurtech. Insurance companies can offer incentives to customers who wear these technologies while driving.
Mobile Applications
Mobile applications in Insurtech can be designed for customers, businesses, or both. Insurance company apps have made the insurance process easier for people on both sides of the transaction.
Drones
Some insurance companies use drones, especially property insurance companies. Drones can inspect properties when sending humans is hazardous, such as on rooftops and disaster areas. Liability insurance companies may also find uses for drones, such as inspecting and photographing accident sites. This technology can also help make the workplace safer.
Key Takeaways
Insurtech is any technology used by insurance companies to streamline their operations, provide better service, or save money. Common examples of Insurtech include chatbots and mobile applications. Insurtech is a major industry – over $16.5 billion poured into funding Insurtech startups between 2010 and 2019. Insurance companies hold sensitive information about their customers, so privacy and data security are critical in Insurtech.
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Sources:
- Insurance Information Institute. “Background on: Insurtech.” Accessed Sept. 21, 2020.
- The Center for Insurance Policy and Research. “Insurtech.” Accessed Sept. 21, 2020.
- The Center for Insurance Police and Research. “Intelligent Machines and the Transformation of Insurance,” Page 11. Accessed Sept. 21, 2020.
Source: https://www.thebalancemoney.com/what-is-insurtech-4584490
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