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INTRODUCTION

The evolution of technologies such as Artificial Intelligence (AI), Big Data, Blockchain, Cloud Computing and others have positively impacted the insurance industry. Digitization has not only helped automate numerous operations, but has also enhanced customer experience. Appreciating the fact that digitization is the key to developing the industry has resulted in several startups entering the space and numerous investments being made. This paper highlights the technologies that have impacted the insurance industry. It also touches upon the avenues that have opened up for the industry in terms of new products and also innovative ways of doing business.

‘INSURTECH’ – THE BUZZWORD

InsurTechs are technology-driven companies that facilitate streamlining the operations of the insurance industry in an efficient manner, thereby reducing costs. InsurTechs leverage on the benefits that technology offers, thereby helping insurers in several ways, be it by unlocking the potential of analytics or making the processes cost-effective by reducing manual intervention.

Some of the business models on which InsurTechs primarily operate are discussed below.

  • InsurTechs play the role of intermediaries between customers and insurance companies. For example, Policygenius Inc. is a digital insurance broker and marketplacethat helps customers compare insurance policies from various insurance companies so as to make informed decisions.
  • InsurTechs have been offering complementary support to insurance companies by enabling technology implementation for them. Xtract is a claims platform for the auto-insurance industry that aggregates and visualizes crash data on a real-time basis, to help process a motor claim faster. It delivers actionable insights to claim handlers, thereby enabling swift liability decision, fraud detection and vehicle damage triage.
  • Few InsurTechs have graduated in obtaining the license of insurer to provide innovative insurance products and services. Lemonade Inc. (‘Lemonade’), a peer-to-peer AI-driven insurance company, offers renters’ insurance, homeowners’ insurance, pet insurance and term life insurance to name a few. The company’s AI bots have simplified the insurance process by issuing a policy in less than 90 seconds and enabling claim disbursal within three minutes.

TECHNOLOGY IMPLEMENTATION

Technology implementation is transforming some of the fundamental processes within the insurance space by offering personalized policies, rapidly processing high volume of claims and mitigating risks.

ARTIFICIAL INTELLIGENCE (AI)

AI enables machines to solve problems and make decisions with enhanced speed and accuracy. It has been estimated that with the appropriate implementation of AI, the insurance industry can potentially earn $1.1. Trillion annually1. AI is leveraged in Chatbots that initiate a conversation with the policy holders. AI also assists in other insurance processes such as during onboarding of customers, assisting in claims processing and in fraud detection.

The implementation of AI enables the insurance verticals in multiple ways (Figure 1):

InsurTech

Figure 1: Benefits from leveraging AI & ML

  • Insurmi, an Arizona-based InsurTech, has developed an AI ‘Violet’ that assists the customers through chat. This is enabled via Natural Language Processing, application of ML and Natural Language Processing. Also, the Stateless Microservices Architecture on which Violet runs allows scalability and flexibility to handle any volume of data.2
  • Lemonade Inc. has developed innovative AI-powered solutions. Built on CX.ai platform, AI Maya is a virtual assistant that automates the underwriting process by collecting data, providing quotes, handling payments, answering complex questions or making changes to user’s policies. Lemonade’s claims bot, AI Jim handles the claims processing, and Forensic Graph, a tool applying AI and behavioral economics, predicts, detects and blocks fraud.
  • Anthem Inc.3 is a health insurance company that leverages IBM Watson Explorer. The ability of Watson Explorer to analyze natural language is utilized to process information, thus swiftly enabling physicians to sieve through vast amount of data in articles and books, and coordinate the medical data with a patient’s medical factor.
  • Lapetus Solutions is an InsurTech that provides AI-based assessments and solutions to achieve faster underwriting and deliver accurate policy pricing. JANUS is its facial recognition tool wherein sensory analytics enables one to draw an accurate estimate about a person’s BMI, age, habits, life expectancy, etc. The applicant receives a personalized life insurance policy by uploading a selfie and answering a few questions, without the need for a medical examination. CHRONOS is another technology that assists in reducing the time of the underwriting process.4 Combining facial analytics, bio-demographic information, and dynamic questioning, CHRONOS returns precise and reliable scores.

BIG DATA

Big Data technology involves securing and analyzing vast amount of data that insurers leverage for fraud detection, customer acquisition, risk assessment and other business processes by applying diagnostic and predictive analytics.

  • Haven Life Insurance (‘Haven Life’) is an online insurance company that provides medically underwritten term life insurance, disability income insurance and annuities. It enables the users to make quick decisions on policies through an algorithmic underwriting process using Big Data analytics5. The information is extracted from the applications and from MIB. Inc., which is an underwriting information exchange, as well as from other publicly available resources.
  • Metromile is a digital auto-insurance company that uses data science and machine learning to offer drivers customized insurance policies. Its pay-per-mile model uses sensors and Big Data to accurately price insurance premiums based on the driving habits of the driver. Their data analytics is based on the combination of Stitch and Snowflake ETL (Extract, Transfer and Load) that help generate powerful insights from many data sources. Metromile Pulse is a telematics device that collects data such as mileage, provides alerts related to car’s health or traffic, and transfers all the data to a smart driving application.

Figure 2 illustrates Metromile’s patent US10706644B2 that discloses a method for determining information regarding whether or not a stop event of the vehicle is related to fuel intake. This information is based on analysis of sensor data related to acceleration, velocity and road conditions generated through the on-board devices. These allow Metromile to receive the data based on various parameters that enable it to price the policies appropriately and corroborate the details in the claims process.

US 10706644B2 - Illustration of fuel intake and/or planning services

Figure 2.US 10706644B2 – Illustration of fuel intake and/or planning services

Health insurance companies are using Big Data to understand patient risk and identify proactive preventive measures. This raises privacy and data protection concerns among customers. In order to address these concerns, the United States and the European Union enacted the Health Insurance Portability and Accountability Act, 1996 (HIPAA), the General Data Protection Regulation (GDPR), respectively. These regulatory standards enable protection of sensitive patient health information from being disclosed without the patient’s consent. The Genetic Information Non-discrimination Act of 2008 (GINA) in the US covers prohibition of genetic discrimination based on information received concerning genetic details of a customer, in the matters of insurance.

BLOCKCHAIN

Blockchain is a digital tool to store immutable data that are time-stamped across numerous blocks utilizing cryptography. Blockchain technology enables insurers to augment their efficiency, security and transparency by leveraging on the permanence and immutability of distributed ledgers and smart contracts. These tools enable faster and error-free processing of claims while maintaining authenticity.

Distributed ledgers or Distributed Ledger Technology (DLT) are consensually shared, chronologically time-stamped digital data spread across multiple networks. Distributed ledgers enable insurers to track the ownership and transaction history of an asset, thus assisting in the verification of claims or policy details. Smart contracts are digital contracts that could be automatically executed over a Blockchain network. This automatic execution simplifies and accelerates contract management on the occurrence of a pre-determined event.

  • Koala, a travel insurance company based out of France, provides insurance in the event of flight cancellation and delays through its ‘Disrupted Flight Insurance’ service. When a flight delay or cancellation is registered, the smart contract gets executed (the delay being the predefined condition) and the payout to the aggrieved party is automatically determined and processed. It reduces burden of the airline customer service and makes the claims process hassle-free for the customers.6
  • The patent – US20210166193A1 filed by Advanced New Technologies Co Ltd discloses the implementation of data processing technology to analyze the data stored in a distributed database that contains smart contracts, to process settlement of claims and initiate the transfer of the claim amount.

Blockchain also assists in minimizing employee-related overheads with respect to peer-to-peer insurance, and this feature is leveraged by Decentralized Autonomous Organizations (DAOs) that are fully digitized claim providers.

INTERNET OF THINGS (IoT)

IoT refers to the network of devices embedded with sensors, software and other technologies, which allow capturing, sharing, and processing of data virtually. Industries that are embracing IoT include connected vehicles, smart cities, smart homes and connected healthcare, thereby creating new opportunities for insurance companies to either alter current approach or develop new business models.

Telematics is the combination of telecommunications and informatics primarily utilized to monitor vehicles using GPS technology and on-board diagnostics (OBD). With Telematics, auto-insurance companies can provide an appropriate premium amount with the assistance of inputs received from driving related data. Progressive Casualty Insurance Company (‘Progressive’) had been one of the first insurance companies to implement telematics for their usage-based insurance policies covering auto-insurance. Later, a few of their patents revolving around usage-based telematics were challenged successfully by Liberty Mutual. Tata Consultancy Services (TCS) provides telematics solutions by implementing technology to convert smartphones into telematics devices bearing the same functionality as devices installed in the vehicles7. This helps in doing away with the blackbox telematics that is comparatively expensive.

Wearable technologies are electronic devices embedded with micro-controllers that are capable of monitoring vital health statistics of the wearer. Wearable technologies offer a wide range of potential applications for monitoring, early diagnosis and prevention of critical health issues.

  • Fuse FlexStrongArm Technologies Inc. (‘StrongArm’), a safety science company, has developed a data-driven wearable technology (Fuse Flex8) that helps in preventing workplace injuries by monitoring the employees and providing real-time alerts. StrongArm’s patent – US10123751B2  deals with a wearable sensor for motion tracking and assessment, while US10335305B2 deals with the self-activated lifting vest with sensory-feedback for use by industrial athletes for appropriate lifting and/or for medical applications. The wearable sets off an automatic vibration felt by the employee when it is exposed to a risky situation, thus preventing or reducing the magnitude of any injuries.

As the smart home technology expands, insurance companies and home owners are actively directing their efforts to seek benefits such as assessment of risk, prevention of loss and reduction of damage. Hippo Insurance Services is a US-based home insurance company that leverages technology to help homeowners in maintaining and securing their properties. Hippo Analytics has US patent applications filed in the area of insurance policy management such as autonomous cancellation of insurance policies, implementing moratoriums in real-time using automated services, and prefilling property and personal information. One of the patents, US10943305B2 deals with insurance policy issuance architecture that facilitates the management of an insurance policy and in identifying whether or not an insurance policy should be cancelled.

CLOUD COMPUTING

Cloud Computing (Cloud) is an infrastructure comprising of software and virtually connected servers and devices which store data that can be accessed from anywhere. Cloud’s services may be rendered in the form of Software-as-a-Service (SaaS) which allows insurers to upgrade and modify their processing tools, Platform-as-a-Service (PaaS), which enables collaboration of cloud providers with the insurer’s team to provide online insurance products and services in a timely manner, or offer Infrastructure-as-a-Service (IaaS). Cloud enables the upgrading of operations, business and revenue models through reduced costs (pay-per-use model is used), enhanced speed, accessibility and agility.

  • Cloud Insurance9 is an InsurTech based on the SaaS model that enables its insurer clients with Cloud Computing abilities. Their functionalities include an Application Programme Interface (API) module for secured data processing between the parties involved (Cloud Insurance, Client Company and Third Party); ML Algorithm to conduct claim assessment; and a smart-pricing module to facilitate automatic adjustments to the pricing of policies based on customer behavior.
  • Leveraging Cloud enables health insurers like Oscar Insurance Corporation10 to provide insurance products and healthcare services. The ‘Oscar Health Insurance’ application provides a user-friendly interface that enables the customers to apply for customized plans based on their health related data. Accessibility of medical history, appointment information of the customers and booking new appointments are a few features which makes the app customer-centric. Their patent – US20150339602A1 discloses systems and methods for generating models of potential medical treatment options.
  • Google LLC, an American technology company, has also planned on offering cloud-based SaaS data and analytics platform for insurers and reinsurers to address their data and analytical needs. The suite is expected to include technologies like advanced data analytics, AI, ML, NLP and video classification, to name a few.11

NEW INSURANCE MODELS

On-demand insurance model – On-demand insurance model allows insuring a product and paying for the insurance only for a predetermined period of time. This allows the customer to have flexibility in the underwriting process, in addition to saving money. For instance, using geo-location details, a person might receive an offer to avail a one-time insurance policy for their flight while being at the airport. The choice of availing the offer rests with the customer.

Collaborative Insurance/ Pooling – ‘Collaborative insurance’ or ‘Pooling’ occurs when a group of participants (companies) come together (known as a ‘block’) and pool their risks, thus reducing the cost of coverage of an insurance. Since the risk is spread among the participants of a block, a higher number of participants ensures better rates and varied coverage plans from the insurer.  In terms of technology, Blockchain supports the pooling model appropriately by bringing in the security and transparency required owing to the creation of digital ledgers and decentralized features.

 Embedded Insurance – Embedded insurance is a novel insurance model where insurance features either:

  • As a part of a product or service such as a credit card offering extended protection on goods purchased through it;
  • As an option along with the purchase of another product, such as an Insurance option during booking a flight.

The key players in the embedded insurance ecosystem are the third party organizations providing the main product or service, the developers or tech entrepreneurs and the insurers. The insurers benefit in terms of gaining low-cost distribution, reducing underwriting risks and having access to data that enables product innovation through analytics.12  The customers gain an option to get insured right when it might deem fit. Special events insurance is such an example of embedded insurance where insurance is provided as a part of the venue rental agreement. Another example is opting to avail insurance during the purchase of a smartphone. Tesla offers auto-insurance at the point of sale as an embedded insurance option.

NEW INSURANCE PRODUCTS

Driverless car liability insurance – Recent advancements in autonomous vehicles (AVs) is causing significant changes in auto-insurance industry. AVs are built with many safety features that improve overall road safety and security, thereby resulting in lower premiums. Hence, more of pay-as-you-drive policies with lower premiums are expected to be bought by customers. Further, with increasing levels of automation in AVs, the accident liability will shift from customer to manufacturer, resulting in manufacturers paying premiums under Product Liability Insurance, to cover for product failure. Development of infrastructure that will support functioning of autonomous vehicles, such as smart traffic lights and camera systems, to alert vehicles and help prevent accidents could create another opportunity for insurance companies to offer Infrastructure Insurance.

Amodo is an InsurTech based out of Croatia that leverages on behavioral data through telematics, enabling insurers to build new products13. Carrot insurance, a UK based InsurTech, also applies telematics to reward safe drivers  by monitoring the green  driving style score through their app, Better Driver, or the online dashboard, New Driver14.

  • Cyber security Insurance – Cyber security insurance is imperative, considering the exposure of personal/official data over the internet that is prone to being breached or illegally accessed. Cyber security insurance provides protection against these data breaches by alerting the insured, and also assists in the retrieval and restoration of the data. Individual Cyber Security Insurance insures the online users who provide their personal data online for various purposes; while Cyber Liability Insurance offers protection against cyber risks faced by organizations for the personal and financial data of their clients and other such public data stored in their servers.Chubb Limited is a global insurance and reinsurance company that provides cyber insurance as one of its offerings to both industries and individuals. The Cyber Enterprise Risk Management, DigiTech ERM, ForeFront 3.0 Cybersecurity help in comprehensive protection towards cyber insurance15. The aim is more preventive than curative, as insurers provide their customers with cyber security software.
  • Climate risk insurance – The World Bank estimates that extreme weather events could cause losses amounting to around 300 billion USD each year. This is creating an avenue to open up in the space of transition and liability risk in the climate risk insurance space. Businesses may be exposed to transition risk at times when they are required to adjust to low-carbon mandate either due to change in policies or technological innovations. Liability risk, on the other hand, occurs when a business fails to mitigate the impact of climate change or comply with evolving legislative requirements.Jupiter Intelligence, a climate risk and analytics company, provides climate analytics for risk management that enables businesses and cities to prepare for climatic risks. Its services range from including climatic analytics in portfolio decisions to providing responses to shareholder queries and regulatory requirements.16 Their technology is leveraged by insurance companies such as Liberty Mutual Insurance and MS&AD Insurance Group.Concirrus17, an insurance data and analytics provider and software developer, analyses numerous factors such as the type of engine and the amount of time spent in water, through analytics. The rating models that are based on AI assist insurers in assessing risks and pricing policies appropriately. In the year 2020, it entered into an agreement with Hiscox, a business insurance provider, for improving its analytics-based underwriting.18

INVESTMENTS, MERGERS AND ACQUISITIONS (M&As)

 As the InsurTech space evolves, the market players need to identify what business strategy works in the best interest of their organization. There has been a surge of investments in the InsurTech space in the recent years, considering the possibilities that exist in this segment. In the first quarter of 2021, InsurTech firms have raised a funding of US$2.5 billion worldwide. The unprecedented growth indicates that the technology-first approach of the InsurTechs offers agility and scalability that helps the companies to operate faster and better.

In June 2021, Wefox, a German digital insurance startup, acquired $650 million in capital. The startup is investing in digital tools that enable automation of labor-intensive processes using an algorithm. In May 2021, Expense Check (rebranded as ‘Kanopi’), an Australian InsurTech, raised AU$4 million through Holland Insurance Company.  Kanopi is a data-driven insurance platform that connects insurers and digital platforms so that they can provide the right insurance to their customers.

Corporate restructuring has also increased recently in insurance space. One of the primary reasons for M&A in the insurance sector is the willingness of insurers to tap into the potential of technology companies that can fill the digital gap and elevate the prowess. Another factor behind mergers and acquisitions is the need for scalability in a shorter span of time where the companies benefit from each other’s customer base and reach.

  • Insurity, a cloud-based software provider, acquired Instec, a software solution provider for insurance companies. Insurity plans on utilizing Instec’s SaaS-based platform for policy administration.
  • Hippo Enterprises Inc., a home insurance group, entered into a business agreement with Reinvent Technology Partners Z, a special purpose acquisition company (“SPAC”). Through the agreement, Hippo’s home protection and insurance platform will get a wider access to the market.
  • During April 2021, Zywave, a SaaS provider for insurance brokers, announced the acquisition of Enquiron, a provider of risk management and consultative business solutions. Zywave will leverage Enquiron’s proprietary service offering to enhance its existing customer experience and to further develop its risk management solutions.

CONCLUSION

In spite of the progress made in the insurance space, there still lie a few roadblocks to be tackled. For instance, telematics is yet to be explored and utilized to its full potential. Another gap that needs to be addressed is developing IoT sensors manufactured by different companies to communicate with each other to avoid on-road issues of automated vehicles. InsurTechs can also work on furthering telematics and data analytics to enable distinguishing the ‘good’ and the ‘bad’ drivers. There is still reluctance amongst the users owing to privacy and profiling concerns, which the regulators need to address better.  The regulators need to maintain a balancing act by making quick progress while at the same time, ensuring proper use of data without any compromise.

By leveraging technology, insurance space is moving towards focusing more on preventive measures rather than curative remedies. The application of Blockchain, AI, Big Data, analytics and IoT is further expected to allow dis-aggregation of products into micro-coverage elements that can be customized. With the increase in sharing of assets across multiple parties, usage-based insurance is eventually expected to become the standard model of insurance. Also, volumes of data received from connected devices is a pathway for insurers to offer improved personalized policies and to deliver claims faster through advanced analytics. The advancement in technology is also impacting the role of agents and is leading them towards becoming process facilitators and product educators. Technology undeniably holds possibilities unexplored that will cause seismic impact in the insurance domain. How technology is leveraged further will determine the future of the insurance industry.

[1]https://bfsi.eletsonline.com/4-ways-ai-can-transform-insurance-sector/            

[2]https://insurmi.com/technology/

[3]https://www.antheminc.com/PW_D014812.html

[4]https://www.lapetussolutions.com/solutions/chronos/

[5]https://www.exastax.com/big-data/top-7-big-data-use-cases-in-insurance-industry/#:~:text=Top%207%20Big%20Data%20Use%20Cases%20in%20Insurance,4.%20Marketing.%205
%205.%20Customer%20Experience.%20More%20items

[6]https://siliconcanals.com/news/french-insurtech-startup-instant-compensation-flight-delays-cancellations/

[7]https://www.tcs.com/digital-insurance-telematics

[8]https://www.strongarmtech.com/fuse-safety-wearables-platform

[9]https://www.cloudinsurance.io/about-us

[10]https://www.techtic.com/blog/build-oscar-health-insurance-app/

[11]https://www.russbanham.com/2021/01/11/googles-insurance-strategy-could-be-a-game-changer/

[12]https://www.fintechfutures.com/2021/01/embedded-insurance-a-3tn-market-opportunity-that-could-also-help-close-the-protection-gap/

[13]https://www.amodo.eu/

[14]https://www.carrotinsurance.com/

[15]https://www.chubb.com/us-en/individuals-families/products/cyber/cyber-insurance.html

[16]https://jupiterintel.com/solutions/#sector-insurance

[17]https://www.bcg.com/publications/2020/insurers-take-up-the-climate-fight

[18]https://member.fintech.global/2020/01/09/concirrus-to-support-hiscox-with-marine-insurance-underwriting/

Disclaimer:

  • This document has been created for educational and instructional purposes only
  • Copyrighted materials used have been specifically acknowledged
  • We claim the right of fair use as ascertained by the author

AUTHOR

Mrs. Arundhuthi Bose
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