Digital-first insurance carriers are developing innovative products and opening additional revenue streams using the latest insurance software.
As a result, the latest insurance software reduces fraud, automates services, builds customer relationships, lowers expenses, and increases operational efficiency.
Advances in insurance software benefit both insurance providers and their policyholders — whether by encouraging responsible driving or promoting a healthy lifestyle.
Let’s go over some of the most powerful insurance software solutions that are disrupting the industry.
Internet of Things (IoT)
Insurance software that collects and transmits real-time client data has drastically improved how insurers price their premiums and calculate risk.
Wearable technologies such as smartwatches and fitness trackers have created enormous volumes of actionable data.
Insurance firms are in a position to understand their customer base on a deeper level, which means that they can offer innovative insurance products with personalized pricing.
The use of smart devices is expected to reach 64 billion devices by 2025.
This is why the IoT is being adopted by insurers around the globe. IoT is the network of connected devices that automatically exchange data with each other over the internet.
IoT is one of the causes of the current digital transformation of the insurance business model.
IoT is Already in Use
By sharing data in real-time, IoT gives policyholders the ability to influence the cost of their policies. Consumers are willing to share some personal data with health insurance agencies for cheaper insurance policies in return.
For instance, the life insurer John Hancock has launched its Vitality Program which rewards its policyholders for living healthy lifestyles. Customers use wearable devices that track the levels of their physical activities. As a reward, they can save up to 25% on premiums and enjoy discounts from other brands.
There are two major ways that insurers are innovating with IoT:
- Intervene in real-time when the device shows that the policyholder's actions are unsafe or risky.
- Use a more instructive approach to encourage safer behavior of policyholders.
IoT allows carriers to use customer data from devices to better understand their clients’ needs and help them avoid potentially harmful behavior.
Telematic devices are installed in vehicles to analyze the driving habits of policyholders which are then shared with carriers. They collect data on speed, distance traveled, and accidents, which are then used to offer tailor-made policy rates while advising them on how to be better drivers:
- The customer should try steering around corners more carefully.
- Instruct the policyholder to brake on time with a video explaining the dangers of hard braking.
- An insurer can analyze speed and location to determine whether the policyholder driving over the speed limit. If this is the case, then the carrier plays a video showing the relation between reaction time and distance traveled instead of simply saying speeding is dangerous.
The traditional way of buying car insurance was that the carrier would rely on a series of questions to set the policy rates.
Telematics enables insurance companies to price their products better because they have reliable data and don't need to ask for customer data.
The benefits for both carriers and policyholders include:
- Encourage responsible driving habits.
- Carriers enjoy reduced insurance claims management costs.
- Proactive insurers are able to provide a improves better customer experience.
While some policyholders may be disappointed to see their premiums increase after installing a telematics device, most will certainly enjoy a decrease in rates.
Interest in Telematics has Spiked
According to a recent consumer sentiment survey, 40% of consumers were considering joining a telematics program. Consumers are planning on driving less in the future, which is why the discounts and deals that insurers based on telematics data are attractive to many policyholders.
Machine learning is a powerful AI-based software that uses extremely complex algorithms. It takes time for the algorithms to be properly trained. However, once they've been trained on various data sets, ML solutions are able to make decisions independently without human supervision. Machine learning algorithms process digital files thereby boosting both speed and accuracy.
They can automate mission-critical business processes such as calculating premiums, automating underwriting, processing claims, and fraud detection.
This is why many insurers are integrating machine learning into their insurance software.
Problems with ML for Insurers
Machine learning needs large volumes of high-quality datasets that are properly formatted in order to train the algorithm (neural network). That is the only way ML algorithms can uncover hidden links within data sets, enabling them to make accurate inferences and decisions.
Simply put, machine learning is only as good as the data it's given.
The Black Box
Any insurance software that's powered by machine learning algorithms suffers from the black box problem.
The black box problem refers to the fact that after a while the internal decision-making process of the ML algorithms becomes virtually impossible for humans to understand.
This presents a serious problem for any insurance business since they must have a clear understanding of all of their decision-making.
Business Rules Engines Are Key
Business rules engines are pluggable pieces of software that are helping insurers fully leverage the expertise of their employees by placing powerful capabilities into the hands of non-technical subject matter experts.
Insurance agents often need to make changes to policies and get to market with new key features quickly. Previously, an experienced software developer or a team of developers was required to manage an insurance system.
Nowadays, business rules engines have modernized the insurance industry. As a result, insurers that have implemented rules engines are able to:
- Drastically reduce time to market.
- Spread out product development across the entire organization.
- Allow subject matter experts to take full control of their insurance products.
Non-technical insurance agents and business users can quickly create and manage new policies in mere minutes as opposed to the weeks or months that it would normally take.
How Do Rules Engines Work?
A business rules engine runs business rules, which are powerful conditional if-then statements that optimize important tasks. They instruct your insurance agency management software on how to run your organization.
Laws and regulations, best practices, business goals, and tasks that automate client communications can be expressed by business rules.
A rules engine goes over a data set and outputs a true or false value based on whether the input data meets the requirement specified by a business rule.
These software tools automate tedious and complex tasks, enable collaboration, improve policy administration and prevent expensive mistakes. They are popular insurance software because non-technical users are able to manage rules during runtime.
Rules engines connect seamlessly with other insurance software, which is why there are called "expert systems."
Application Programming Interfaces (APIs)
Insurance providers experience different types of issues when implementing new insurance software. The biggest challenges stem from the digitization process which is hampered by existing IT architecture and legacy systems. One of the ways to sidestep this problem is with APIs.
An API is a set of protocols and tools that connects a wide selection of devices such as medical instruments, electric grids, and even cars to a carrier's ecosystem.
According to Accenture, 82% of insurance executives agree that open ecosystems enable them to grow in unprecedented ways.
Insurers use APIs to connect dated legacy systems with newer solutions and obtain data from various sources.
Open APIs Open New Opportunities
Insurers can use open APIs to display their products to a wider audience by giving external partners the ability to use them to upsell customers.
For instance, a travel booking website that uses open APIs in its apps could partner with a travel insurer to help sell travel insurance through the booking app.
This would make it easy for vacationers to book their reservations and buy travel insurance at the same time.
Integrating IoT with Rules Engines
Insurance carriers must make sense of the vast volume of data streaming from IoT devices. This is why insurers use rules engines to make changes and create new rules.
Business rules approve the incoming data from connected devices to outline what sort of actions need to be taken.
Insurance carriers can alert policyholders of potentially risky events:
- A door is left unlocked as the residents leave the house. The rules engine executes business rules that immediately alert the residents by sending a text message.
- The temperature in the residence is extremely high and the fire alarm isn't functioning. Business rules can trigger email alerts, or give instructions to devices to sound alarms.
- The policyholder's heart rate is too high. Business rules can analyze all the critical information and alert both the patient and the doctor about potentially dangerous changes.
By using real-time information, carriers become partners with their policyholders while reducing costs.
Modernizing Legacy Insurance Software
Any legacy insurance agency management system is a hard-coded and rigid system, which means that even the slightest changes take weeks and sometimes months. This is because only experienced software developers have the expertise to deploy the latest underwriting models or add new features to existing products.
In order to optimize product development and streamline claims management, insurers can connect their sales systems to Hyperon, which is a user-friendly business rules engine.
That means that non-technical business users can create and manage complex models and algorithms.
For example, when carriers make changes to their premium calculation models, they do so in Hyperon without working with the code base. As a result, insurance companies become more flexible and are able to enjoy a shorter time to market.
Hyperon can be hosted on the cloud or locally so that connect to any cloud-based solution.
Consumers expect customized policies and on-demand after-sales service for which they're willing to exchange some of their data.
Implementing new insurance software remains a top concern for many providers. These tools discussed in this article will transform the way insurance companies handle their critical processes — from customer engagement and process management optimization to underwriting and fraud prevention.