Why Insurtechs Should Be a Priority For Traditional Insurance Firms
Technology is defining how insurance companies will maintain or improve their revenues and customers. In Deloitte’s A demanding future: The four trends that define insurance in 2020, the incumbent insurance industry stands on the precipice of profound change – and this will be pegged on its ability to partner with InsurTechs to drive its businesses.
One area that Insurtechs are winning in the underwriting industry is the ability to use big data to capitalise on inefficiencies experienced by traditional insurers. Insurtechs have invested in myriad of tools to access this data – then use and apply it correctly to inform optimal business development, strategic choices and decision-making.
The best option is for the traditional insurance firms to partner with insurtechs, as they have amassed massive data and come up with technology tools that are valuable to their businesses. Through the guidance of insurtechs, they will be able to come up with sound pricing models, seamless underwriting processes, solid fraud detection capabilities and sensible product development.
For example, according to Deloitte’s Insurance Outlook Report 2019, big data will allow development of products that will cater to specific customer needs as opposed to one size fits all products.
“…individual fitness trackers would enable people who lead active lives to get discounts on their life insurance while those who lead sedentary lives would be charged an additional premium,” says the report.
In PwC’s Harnessing the Power of Disruption, InsurTechs are naturally keen to drive commercial value of traditional insurers. Also, their proliferation in the market is a testament to their compelling execution of emerging technologies making it worth the partnership.
In an increasing data-driven insurance environment, use of Artificial Intelligence (AI) is becoming a common phenomenon. Through AI, an insurer is able to provide – with greater speed and greater accuracy – an entire insurance stretch across the value chain, from the back office to the front.
Even then, without this key parameter called Big Data, it would be an uphill task to execute desired outcomes when employing the use of AI’s tools and applications.
Once the data is obtained, analytics is then applied to generate insights from the data. Thereafter, these insights are applied to business functions such as product development and marketing. This now results in an impact, which could be in the form of increased revenue, better utilisation of resources and improved customer experience.
With wanton financial resources and reserves, why can’t the incumbent just create a formidable data-rich department instead of partnering with an InsurTech?
Many traditional insurers have tried this, but are faced with several obstacles. Majority of them lack appropriate IT infrastructure and human resources to optimally explore big data as a solution for their businesses. Others are not aware of the potential that big data presents and how they can tap into it.
Issues of data protection and costs associated with overhauling entire IT infrastructure are also deterrents.
According to Deloitte’s A demanding future: The four trends that define insurance in 2020report, incumbent firms can no longer rely on organic growth or internal innovation. The winners will be those that can forge alliances with innovative start-ups; ally with InsurTech; and consolidate with their peers. A rapidly changing industry will require unprecedented deal-making skills.