Insurance technologies make current insurance models more efficient. But with these efficiencies come certain challenges and pitfalls.
Insurtech helps insurance companies effectively process claims, evaluate risk, process contracts, underwrite policies, and offer tailored services to customers. No wonder that the global market for insurance technologies is growing at a remarkable speed.
According to GVR’s Insurtech Market Report, The global insurtech market size was valued at USD 5.45 billion in 2022 and is expected to expand at a compound annual growth rate (CAGR) of 52.7% from 2023 to 2030.
However, despite the efficiencies, it faces certain challenges, too. Here are some advantages of insure tech, and a few important pitfalls:
Efficiencies of Insurtech
The industry gets clear value additions from tools that deliver speed, agility, and security. It plays a crucial role in changing how the modern insurance model works. Here are a few ways it enables efficiencies in the insurance process:
Improves Customer Experience and Efficiency:
Insurtech uses robust collaboration tools to understand the customers’ insurance needs better and help them select their coverage. It can help them correctly identify products and solutions that meet their needs and paying capacities.
With digital insurtech tools, customers do not need physical meetings; they can find better deals and solutions that match their needs online.
This way, they can choose the engagement channel that will give them customized service.
At the same time, policy-seekers and policyholders can research and explore better options using digital apps. They can get the required information for their use rapidly and accurately. For this, they do not need to go through long processes or interact with a human representative.
Offers Flexibility, Reduces Operating Costs and Fraud
Insurtech offers flexible, customized, short-term, or transferrable plans. Interestingly, this tech allows for customized coverage for specific requirements at a particular duration.
Standard insurance companies depend on locations that require manual collaboration. On the other hand, Insurtech allows them to operate remotely, providing global services. The customer’s geography will not impact the accuracy and relevance of the service solutions.
Furthermore, with the help of data, analytics, and machine learning, firms can monitor and detect any unusual activities. This helps to prevent fraud and helps in the mitigation of data inconsistencies and loopholes.
Allows Seamless Underwriting and Contract Execution
Underwriting is a process used to review a person’s risk profile to help insurance firms plan an insurance package that offers them the best coverage. With automated insurtech tools, most of this data can be derived without human intervention.
Insurtech uses intelligent tools to compare data points against traditional data, allowing them to make more informed decisions. This means the data decides whether to extend a policy or the correct price per the associated risks.
Furthermore, many insurance-related processes, like enforcing multiple insurance level tiers, closing a customer’s expired policy, or approving a new customer, need sensitive handling. AI-based automated tools or bots can help here. It offers much higher speed and efficiency, making the whole process easier for the customer and the company.
Insurtech sometimes uses Blockchain to execute smart contracts when specific criteria are met. This reduces the human element needed to monitor the agreement. This process also ensures an unbiased evaluation of the contract, based on its specific criteria, and implements a proper course of action.
The entire process becomes easily trackable and completely secure with the aid of Blockchain.
Eliminates the Scope of Disagreement
Conflicts are likely to arise between insured policyholders and insurers, leading to cancellations. At the same time, multiple interests regarding claim validation or damage claim acceptance might slow down claim processing and lead to rapid disagreement.
In the event of a conflict, customers expect a quick resolution from their insurance provider. Therefore, to reduce the scope of disagreement on an insurance claim, Insurtech can help with flexible and automatic contract enforcement.
This feature is promising because users are satisfied with the transparent handling of the policy, its clauses, and the mitigation of conflict.
Today, firms must ensure robust and impeccable digital transparency. Confidential information is always vulnerable; they must handle the data carefully.
It is always better for them to take transparency at a higher level to ensure regular implementation of the relevant data protection legislation.
with tools that use automation, SI, and ML, the data is completely safe. Further, any usage of data for conflicts, payouts, or reinvestments, is also through a transparent exercise, driving increased trust in the insurance brand.
Challenges of Insurtech
The Insurtech model can be broken down into broker and product levels. The broker level offers insurance services, while the latter provides a hybrid approach.
While Insurtech is a boon in many aspects, there are also implementation challenges. Below are a few challenges of Insurtech.
One of the crucial concerns during data collection is privacy issues. Customers are often worried about how their data is being handled.
Insurtech is an emerging business model that will likely have privacy issues. Financial firms must ensure a robust data protection infrastructure that ensures data compliance remains a top priority.
Handling Varied Multiple Regulations
Due to its sensitive nature, insurtech tools need to handle the customer data very carefully. The use of digital tools pushes the financial sector’s boundaries and increases concerns about how it will deal with its regulations. Added to the challenge are the various regulations for insurance across the globe.
At the same time, anti-rebating laws constitute a major concern, prohibiting insurers from providing other services apart from insurance.
Not all insurance tech tools are equipped to deal with these variations. There are instances where the customer may feel insecure about their data privacy, or its use.
The solution is uniformity and standardization of insurance rules. However, it is only possible once efficient algorithmic underwriting is regulated.
The above issue is evident since some Insurtech apps offer robo-advisors and virtual agents requiring separate licensing.
Legal & Regulatory Framework Changes
Since insurtech firms depend on the type and extent of the services provided, not all qualify as insurance companies. Customers need a reliable guarantee that they are dealing with a legitimate brand. They need to be sure of who to approach in case of an incident or loss.
Impersonal tools do not always provide that sense of security and understanding.
Insurtech firms that have either chosen to operate alone or have not yet got into contracted partnerships with notable global insurers face more significant issues. Distribution across brands can slow down the GTM of the products. There is often a delay in delivering new products and improving CX. Thereafter, it takes time to achieve consistency too.
With evolving tools, it is a doubtful situation, on whether the management of other aspects of insurance is possible when all the costs have been put into refining a single stream.
Excellent data and advanced analytics help financial firms track the behavioral aspects of customers with their spending habits. Insurtech uses crucial insights to process standard insurance selling issues.
At the same time, it offers an innovative way to gather data, execute contracts, and analyze data accurately. It drives lower, more tailored, and flexible coverage.
However, the industry has started adopting efficient insurtech tools to add value to their business. all they need to do is to be aware of the challenges that may still lie ahead, and look for ways to mitigate them.