Unbundling insurance: How startups are reimagining the underpenetrated sector for a digital makeover
Blog: NASSCOM Official Blog
By Piyush Jha, Vice President – Engineering, GlobalLogic
According to IRDAI annual report insurance penetration in India stands at 3.69 per cent, one of the lowest across the world. This provides a huge scope for future growth in the industry in line with the medium-term economic growth prospects of the country and the large base of non-insured citizens. There seems to be a shift in the thought process of the evolving customers, competitors and organizations that are challenging the traditional insurance business models and their existence. With evolving customers, insurers are already under pressure to change periodically. So where do we go from here? What customers are demanding is essentially three-fold – transparency, speed and a hassle-free claim settlement. All problems which other sectors have solved through the use of digital technology and a bit of audacity!
Thus, insureTech. It is here to impact the insurance industry and is disrupting the traditional value chain to develop digital distribution and customer experience. In the last three years, according to CB Insights, insurtech funding has tripled in Asia (from $140 million to $506 million) — an incredible, necessary development. The Indian insurance ecosystem is still adapting to the technology-driven pace of change, but it is notable that insurtech has started to redefine how the industry interacts with the consumers. As we continue to move forward, this innovation is focused on the following areas:
Traditionally, the insurance industry has been a front runner in bringing out products providing competitive differentiation. The monolithic all-coverage policies of yesterday are being supplanted by point solutions for on-demand subscription-based coverages – what the client needs when they need it and for only as long as they need it. As consumers begin to demand a more integrated approach to their challenges, it has given rise to the emergence of service-based products.
This is now undergoing a massive forward thrust. From pay-by-the-mile auto insurance for personal and commercial auto & truck market, gig economy solutions for rideshare drivers, property sharing (AirBnB) and even event-based service providers like drone liability insurance. Even more interesting are the products that are in the factory and about to come out – gamification, transparency and predictability will be in vogue – the premiums will not just be linked to what one consumed earlier but also on the probability of usage. For example, safe driving will be rewarded, and all-night rides will be noticed even on insurance payouts.
According to McKinsey, nine out of ten insurance companies are struggling to develop technology infrastructure, owing to legacy software and the magnitude of their IT systems. Also, innovation in the way a company executes on the promise of insurance is also being driven by the same trends. The people living with AI and automation in their daily lives are the ones who deliver services to insurers and claimants, using antiquated systems. The process of selling policies and settling claims needs to be automated to better meet employee needs while reducing the human element and costs associated with high manual processing.
Indian technology companies are leading insurtech innovations and India’s start-up ecosystem is not too far behind. New insurtech players now offer all critical 360-degree support and a marketplace to compare policies and prices. For instance, while some companies have become fully-digital general insurance companies, others offer rewards to insurers on being fit, or pay as you go insurance (uberization of insurance), or provide sophisticated analytics applications targeting core insurance use cases, etc.
Large players in the insurtech space are offering integrated policy solutions, usage-based insurance, big data comparators, SaaS-based models and apps to improve the insurance industry’s responsiveness to solve the current insurance challenges. On the other hand, smaller start-ups are focusing on niche spaces that typically large insurtech players don’t. Start-ups today are scaling rapidly, bringing new opportunities and competition to established insurers.
What insuretech today is turning its eyes today towards is the massive amount of data available with the industry and what it can tell them – about consumer behaviour, the probable results of the behaviours and their expectations. Everything from new data sources, analytics and distribution technologies to the creation and tight integration of ecosystems of claim services providers like national salvage networks, property damage remediation companies and the mundane processes of making payments will need to be accomplished in new digital ways that strain current carrier capabilities designed around paper checks and ACH transactions.
Companies are also adopting API-driven microservices architecture. However, keeping the customer at the centre of these developments is key. Some companies have struck the right balance using robotic process automation (RPA) – software that assists human staff by performing complex back-end tasks effectively. Hence, RPA is benefitting customer interactions and boosting data-harvesting capabilities.
The final frontier for innovation in insurance is to supplement the traditional insurance approach that the brand’s policy offers against loss and the claims services that come into play once a loss event occurs. Traditionally a forward-thinking innovative insurer was providing loss-control reviews and services to clients.
Today’s digital native customers look for technological tools and experience from their insurer at par with what they receive from any other service or retail industry. They expect hyper-personalized services such as drop-off & pick-up service for their damaged vehicle. They want alerts and recommendations on how to protect their property from those fires, environmental spills etc.
Furthermore, the introduction of chatbots and voice assistants in the insurance industry has enhanced customer engagement. As it gains popularity amongst the customers, the technology leverages artificial intelligence (AI) to simulate productive conversations while delivering powerful customer engagement.
Today, with the advent of technologies such as IoT and Data analytics, innovation in life insurance has begun to show its effectiveness. However, in the insurance sector, quantifying risks requires invasive medical tests and technical assessments. Therefore, studying customers’ interaction patterns and behaviours and accordingly suggesting insurance products and personalized pricing to customers through deep-data analytics has also become a key differentiator.
Most countries are instituting regulatory platforms that allow and encourage innovative technologies to enter the market. These technologies have the potential to bring greater financial protection, better, customized insurance coverage, even to those in the lower-income bracket. The new distribution models can simplify the insurance process and bring insurance to less developed markets.
In summary, the industry will do well to embrace the tech disruption and ride with the wave rather than to duck it. And from what we see yet, the leaders and the digital native startups have both taken their first steps towards the change. Carpe-diem, they say!