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How new InsurTech models decrease the cost of risk cover in insurance

Blog: Capgemini CTO Blog

In any industry today, we often see new entrants disrupting existing business models in pursuit of growth. Most often, these new entrants follow one of two growth strategies: growth by increasing their share of the pie (e.g. Netflix disrupting through online on-demand video streaming, taking away market share from traditional movie rental stores) or growth by expanding the scope of offerings and increasing the size of the pie itself (e.g. smartphones expanding the size of the phone market by catering to more customer needs).

However, in the insurance industry today, we see quite a few new entrants driving the cost equivalent of the latter: using various innovative means to decrease the overall cost base required for risk cover in insurance. This is being done specifically by addressing and mitigating the moral hazard and morale hazard aspects to customer behavior and through that, reducing instances of preventable claims. This consequently reduces the actual overall capital required for risk cover.

As with most new models, technology is the key enabler to this trend, making customer relationships more virtual and, therefore, more accessible and manageable at the level of an individual or a small group. AI, RPA, and advanced analytics, particularly, are the catalysts that make these more real-time and personalized insurance models possible. Here, I would like to discuss two emerging models that are helping shrink the cost of risk cover in insurance today:

Thus, even as insurers explore new revenue streams through innovative products and services, a sizeable innovation effort is being directed towards improving the bottom line by reducing the overall industry cost base as this is one of the top challenges the industry has traditionally grappled with. As we speak to leading insurers for the upcoming World Insurance Report 2018, we see how margin pressures are one of the top-most concerns in the mind of executives when they look to the near future. In this context, it is heartening to see that these new technology-enabled models, which are driving down the industry cost base, will not only lower costs for insurers but also render insurance more affordable and accessible to customers.

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