The financial dimension of the insurance sector makes it belong to the financial sector; however, in a way it also competes with the latter when considering the extent of the disruption created because of the arrival of new technologies and new companies in both sectors, called fintech and insurtech startups.
In this sense, and although the financial sector got a late start, the insurance sector is slowly advancing to the same level as the first one in terms of global investment volume. According to data from CB Insights, the volume of investments from venture capital funds in insurtech startups in 2016 reached the figure of $1,620 million.
Aware of this boom, Capgemini, one of the world leaders in consulting, technology and outsourcing, recently published a report that considers the top ten trends in the insurance sector for 2017.
In this first post we will delve into five of these trends that will profoundly transform the insurance industry globally.
This post is also available in Spanish.
Where is disruption in the insurance sector coming from?
USE OF AUTOMATION AND ARTIFICIAL INTELLIGENCE
Artificial intelligence, machine learning, predictive analysis or more specific uses of intelligent machines - for example, the use of drones to analyze property damage - is already allowing insurers to automate repetitive processes that don't require making decisions.
In 2017, these technologies are expected to become more refined and popular standard. Their capacity to process even larger volumes of data will make companies in any sector increasingly delegate their processes to their own robots and machines, even including those processes that require taking decisions. This trend will not only allow for a greater processing capacity while reducing companies’ operating costs, but it will also offer a better user experience.
REDEFINING INSURANCE DISTRIBUTION
The generalization of quite new distribution channels, such as online platforms to search for insurance or chatbots, have already profoundly impacted the area of personal policies. But in 2017, these technologies will similarly disrupt policies aimed at small and medium companies.
Precedents such as Allstate, which allow SMEs to buy policies in just five minutes, or P2P platforms such as Gather, will go from being the exception to the norm, offering greater transparency and reducing costs in contracting insurance for these type of companies.
In this sense, in addition to the emergence of these types of companies, the biggest threat that looms over insurers comes from the so called GAFA - Google, Amazon, Facebook and Apple. If these companies enter the insurance sector, they have all the cards to control the distribution channels, since each one has a huge database of user data and, most importantly, controls communication with them! This is one of the biggest challenges for traditional insurance companies, which could be relegated to mere utilities (as is happening with telecoms).
CHANGING MARKET DYNAMIC DUE TO VALUE CHAIN DISAGGREGATION
There are more and more companies specialized in products and specific services for certain areas in the insurance sector. Some of these insurtech companies are dedicated to adding large volumes of data from insurance companies to offer to comparison websites, some offer social networks that group clients together to get discounts, while others facilitate risk identification and management, streamline making payments or offer cutting-edge apps for their customers.
This constellation of niche companies leads users to stop interacting with a single vertically integrated company. Now they are dealing with many during the hiring and permanence of a specific policy. It is expected that this trend will impact customer loyalty and will lead to greater competition. For this reason, it's more important than ever that insurers choose their partners well, outsource part of their activity and consider specializing in those areas that they are most competitive.
NEW PRODUCTS FOR THE SHARING ECONOMY
In contrast to other sectors where the sharing economy is a challenge and a threat, insurers have begun to see services such as Uber, Lyft or Airbnb as a business opportunity for new products that were unthinkable until the normalization of these new ways of accessing a vehicle or home.
The company Metromile, for example, offers car insurance that is paid per mile driven, tailor-made for Uber drivers. Slice, on the other hand, offers home insurance designed for Airbnb hosts.
In 2017 this collaboration will continue to be mutually beneficial for both sides, but insurance companies should develop new tools to assess new risks for those who do not have a history, as well as short-term or on-demand products.
INCREASING USE OF MOBILE TECHNOLOGY TO MANAGE RISKS AND IMPROVE CUSTOMER EXPERIENCE
We live in a context where the adoption of smartphones is unstoppable. Along with that, the progressive interconnection of more and more devices that generate data, that is easy to capture and analyze, offers insurers a great opportunity to proactively mitigate risks.
For example, health apps that capture biometric information and serve as a window to send preventative messages, mitigate risks and help reduce the volume of claims.
At the same time, the greater competition between new and traditional players in the insurance sector make the user's digital experience a battlefield for customer retention and loyalty. That’s why apps that allow you to formalize custom policies with just a few clicks not only reduce operating costs, but also enable to meet the expectations of consumers in terms of service and personalization, and thus they trust their policies for a longer time with the same company.
(To be continued…)
This post is also available in Spanish.
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