Insurance Technology: Innovations and Emerging Trends

Insurance carriers who have embraced the use of technology have enjoyed exponential growth in the past decade.

The insurance industry is undergoing a transformation spurred on, in part, by the Covid 19 pandemic. Digital-first insurtech companies are introducing new business models and generating additional revenue streams fueled by new technologies. 

Implementing the right insurance technology can reduce fraud, automate services, and lower operational costs, which allows insurers to focus on other critical tasks such as acquiring new customers.

Also, consumer expectations have evolved and insurers need to enhance their services to meet these needs. The insurance industry is pivoting away from a reactive form of risk indemnification to a proactive approach that seeks to mitigate risk on an ongoing basis.  

Advances in insurance technology benefit both carriers and their customers — whether through promoting safer driving and a healthy lifestyle or offering a smooth onboarding experience. With the explosion of data, insurance companies now have a dual role in managing risk while encouraging physical and financial well-being.

Improving Customer Experiences

The insurance industry is notorious for its slow tech implementations and low customer touchpoints. Typically, insurance companies interact less with customers than businesses in other industries. 

As a result, many insurers struggle to gain insights into their customers, making it difficult to develop personalized products.

Moreover, customers expect personalized products and services that prioritize the customer experience. Customers are more likely to interact with insurance carriers who recognize and validate their needs. 

We review the leading insurance technology trends that are revolutionizing the industry.

The sooner that insurers can master new insurance technologies, the better their chances of thriving in the future.

The Explosion of Data

Ever since data became widespread, open-source protocols emerged to ensure seamless data-sharing between organizations and industries. And insurance carriers stand to greatly benefit from these trends.

In fact, data has already become one of the most valuable resources for the insurance industry.

For instance, customer information from wearable devices like fitness trackers is directly sent to insurance carriers (with their permission, of course).

The way in which insurance providers define, calculate and manage risk is all based on the quality and amount of data they obtain during a customer's life cycle.

Internet of Things (IoT)

The use of technologies that collect and transmit live data has dramatically increased over the last few years.

While the manufacturing sector has relied on equipment with embedded sensors for quite a while, we are now seeing a huge spike in the number of connected consumer products.

Wearable technologies such as smartwatches and fitness trackers along with smart home appliances and medical devices have contributed to an avalanche of actionable data. And insurers that rely heavily on data are taking note.

Insurance providers are able to understand their audience on a deeper level, resulting in innovative insurance products, customized pricing, and fast delivery. 

The use of smart devices will only continue to grow with the expectation that up to 1 trillion devices will be connected by 2025. 

This is why the Internet of Things is being leveraged by the insurance industry. IoT refers to the network of physical objects with built-in software that automates the exchange of data with other devices over the internet.

It is one of the main driving forces behind the current digital transformation of the insurance industry. The global IoT insurance market value is projected to reach $43 billion in 2022.

This way insurers can use customer data from devices to better understand their customers’ needs.

Insurance companies can leverage the real-time data it gets from various devices to improve risk assessment, set rates, mitigate risk, and prevent losses.

Insurers Are Already Experimenting with IoT

By sharing direct data in real-time, IoT gives insureds the ability to influence their policy pricing. Customers today are happy to share personal information with carriers if it means cheaper insurance policies.

For example, The John Hancock Vitality Program rewards its clients for following healthy lifestyles. Insureds use wearable devices that track their behavior. In return, they can save up to 25% on premiums and enjoy discounts from other businesses.

There are two main ways that insurers can use IoT to get a competitive edge. 

One is to intervene in real-time when the device shows that the user's actions are risky or not conducive to reaching certain behavioral targets. The other way is to use a more instructive approach to steer customers towards safe behaviors. 

Telematics

Telematic devices are installed in vehicles and track the drivers' behavior which is then shared with insurers. They collect information on speed, distance traveled, location, accidents, etc, which is then used to help set policy premium rates. 

Telematics enables auto insurance companies to track customers' driving habits and use rules to send them advice on how to be better drivers. For example: 

  • The driver should steer around corners more gently. Also, send a short video explaining the best way to approach a corner and how it affects the safety but also comfort of his passengers.
  • Try to start braking earlier and with an explanation of the dangers of hard braking. 
  • An insurance company can match speed and location together to determine whether the insured is speeding. If that's the case, then the insurer can send them a video explaining the relation between yes explains reaction time and distance traveled - instead of simply saying speeding is dangerous.

The traditional way of getting car insurance used to be that the insurer would ask a series of questions and use the answers as a basis to set the policy rate. Of course, the insurance provider would also take into account exaggerated claims and flat-out untruths.

So, insurers can price it better because they have reliable data from reliable sources and don't have to ask for data from customers.

The benefits for both insurers and customers include:

  • Promote better driving
  • Reduce claims costs for insurers
  • Insurers become more proactive which improves better customer experience

Although some customers may be displeased to learn that their premiums have increased after installing a telematics device in their car, others will enjoy a decrease in rates.

Machine Learning

There's a lot of excitement surrounding machine learning, which is an important branch of artificial intelligence (AI). It is a powerful AI-driven software that uses intricate algorithms to process and study data without human supervision. After a while, the software can reach conclusions by itself, which is one of the reasons why machine learning is popular.

When files are digital they can be evaluated with sophisticated algorithms, thereby boosting both speed and accuracy.

It can automate mission-critical operations including calculating premiums, underwriting, claims processing, fraud prevention, and managing risks.

The Issues with Using Machine Learning in the Insurance Industry

Machine learning requires large datasets to train the algorithm (neural network).

Sophisticated algorithms study datasets and discover subtle relationships within the data, which allows them to make inferences and predict outcomes. 

However, machine learning requires large volumes of high-quality data to properly function. Therefore, machine learning is only as good as its data.

The Black Box Problem

Machine learning platforms suffer from the black box problem, which presents a risk for the insurance industry. Simply put, over time the internal decision-making of the algorithms becomes hard for us to understand.

For most insurance providers this presents a very serious problem since they must have a clear overview of all of their decisions.

Blockchain

You may be surprised to find Blockchain included as one of the insurance technologies with the potential to disrupt the industry.

Blockchain is a digital distributed ledger system used to store records and transaction data on a network. The information stored on the blockchain can reportedly never be deleted. It builds trust in a trustless ecosystem between parties without relying on an intermediary, which reduces costs and increases efficiency. 

Innovative insurtech companies believe that the blockchain can enhance risk assessment and fraud prevention measures. They're also betting on this relatively new technology lowering operational costs while meeting customers' needs.

For example, in multiple-risk participation cases, several insurance providers agree to share a part of the responsibility for a potentially massive loss.

With blockchain technology, the various insurers could enter their reference data along with their level of participation, and declare their commitment in a clear and permanent way without a central clearing authority.

However, the potential of blockchain is still a long way away. Insurance companies looking to implement blockchain have to overcome huge regulatory and legal hurdles. After all, we are talking about the insurance industry— an industry that was very slow to implement cloud computing.

The Impact of Business Rules Engine

Talent is all around.

Business rules engines are low-code platforms that are helping insurance carriers to unlock the full potential of their staff by placing powerful capabilities into the hands of non-technical people across the organization.

Insurers today need to make updates to existing insurance products and get to market with new services instantly and accurately. Even though this used to require an experienced software developer, rules engines have made a revolution in the global insurance industry.

The benefits of business rules engines include:

  • Dramatically faster time to market
  • Widespread product development across the entire insurance company
  • Enabling subject matter specialists to take full control of their insurance offerings

Insurance agents with basic software knowledge can immediately create and deploy new products in a fraction of the time usually taken.

How Do Business Rules Engines Function?

A business rules engine is a robust software component that runs business rules. Business rules are conditional if-then statements that optimize critical tasks of an organization. They tell your enterprise software how to run your business. 

For example, an e-commerce store could have this business rule:

If a new customer buys auto insurance and already has home insurance with no claims, then give them a 10% discount.

Regulations, best practices, and business goals are all represented by business rules.

When a rules engine analyzes a data set, it will produce a true or false result based on whether the input data meets the criteria outlined by the rule.

Rules engines automate tedious and elaborate tasks, boost collaboration, and prevent costly mistakes. What makes rules engines such an attractive piece of insurance technology is that they allow non-technical users to change rules during runtime by non-technical users.

Rules-based solutions are powerful because they enable subject matter specialists to create new insurance products, update regulations, and deploy fraud prevention solutions without asking for help from the IT department.

This is why business rules engines are sometimes called "expert systems."

The Importance of Application Programming Interfaces (APIs)

Each insurer experiences particular problems in trying to implement new insurance technologies.  Insurance carriers often face challenges to the digitization process due to existing IT architecture and legacy systems.

The way to speed up the process is through APIs because insurers are able to integrate older IT systems with newer ones and acquire data from different sources.

APIs drastically improve time to market for new insurance services by quickly integrating apps. 

An Application Program Interface (API) is a set of protocols and tools designed for software development. APIs are intertwined with IoT because they enable the secure transfer of data over internet protocols between connected devices applications.

Since APIs can link together a wide range of objects such as cars, medical instruments, electric grids, and even thermostats to an insurer's ecosystem, it’s essential to choose an API that is secure, fast, and scalable. 

REST is the most commonly used type of API today.

To truly achieve the full potential of IoT insurers should implement a REST API for every connected device.

Building Insurance Solutions with Business Rules and APIs

APIs unlock the possibility for the development of new insurance products by streamlining the transfer of data to developers, insureds, and partners. APIs are one of the most important tools that open up new opportunities for innovations, revenue streams, and market capture.

Leading insurers are pivoting toward an incredibly interconnected ecosystem of applications, machines, and sensors (Internet of Things) which are transmitting information in real-time to data centers. The information first goes to a middleware app and from there is distributed to the insurance application. 

It is here that business rules validate the incoming data from the various devices to detect whether conditions are met in order to take some actions. 

Internet of Things and Business Rules Engines

Insurance providers need to make sense of the huge quantities of data they collect from IoT equipment. What they need is a tool that can make adjustments and introduce new rules.

In other words, insurance companies need a business rules engine. Depending on the type of privacy settings customers select, insurers can send alerts or emails informing them of potentially risky actions: 

  • A window is left open as the occupants leave the house.
  • The temperature in the house is extremely high and the fire alarm isn't going off, then they should check to see what is happening.
  • Conversely, the temperature in the house drops to below zero temperatures due to heating system failure, which might lead to frozen pipes that break and cause water leaks.
  • The customer's heart rate is too high and isn't the result of playing sports.
  • They put on too much weight which isn't related to gaining muscles (if insurance companies have enough data then they know whether someone is exercising). 

Using real-time information to help customers minimize risk and reduce costs, the insurance industry becomes a partner to people while reducing costs.

Final Thoughts

These tools will help insurance providers restructure everything they do —  from customer engagement, product development, and setting rates to underwriting and fraud detection.

Today's consumers expect personalized, on-demand, and flexible services, and are prepared to trade their personal information to get them. Incumbent insurers have a range of powerful insurance technologies that can automate mission-critical tasks while helping them meet customers' needs in real-time.

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