What Is Insurtech and How Are Insurers Using It?
Insurtech Is a Broad Category of Technologies That Are Constantly Changing
Insurtech is a broad category of constantly changing technologies used in the insurance industry. Short for insurance technology, insurtech is a subdivision of fintech (financial technology). It is revolutionizing the insurance industry and changing the way insurers do business. Until recently, these changes were largely invisible to policyholders. Insurers were utilizing new technologies, mostly "behind the scenes," to perform functions that customers couldn't see. Now some policyholders are experiencing insurtech firsthand.
Insurers are experimenting with chatbots, smartphone apps, and other tools to improve communication with customers and provide faster service.
Types of Insurtech
Some of the tools insurers are utilizing today may be obsolete a decade from now. However, the technologies outlined below should be around a while.
The term artificial intelligence (AI) refers to computers that are able to perform functions normally associated with humans, such as reasoning and learning. Some insurers are using AI to create chatbots, computer programs that can communicate with customers verbally or through text.
For example, Allstate has created a chatbot called the Allstate Business Insurance Expert (ABIE). ABIE resides on Allstate's website and provides answers in real time to business owners' questions about insurance. Other insurers have created chatbots that customers can use to complete applications or file claim reports. A key advantage of chatbots is that they are available to customers 24 hours a day, seven days a week.
Another type of insurtech is machine learning, which is a subcategory of AI. As its name suggests, machine learning is a technology that enables machines (computers) to "learn" over time. It utilizes algorithms and mathematical models to mimic neural networks in the human brain. Machine learning allows computers to acquire knowledge by extracting patterns from raw data rather than following specific instructions.
While only a few insurers are currently using machine learning, most could benefit from the technology. Insurance companies amass large amounts of data. Yet, according to the NAIC, most insurers use only 10 to 15% of the data they collect. Machine learning will enable insurers to mine their data more effectively and extract valuable information. Here are some ways insurers are using (or will likely use) machine learning.
- Risk modeling. Insurers analyze claims data in order to predict the risk of future losses.
- Demand modeling. Insurers can use mathematical models to predict demand for their products in the future and to estimate premiums.
- Detecting fraud. Machine learning helps insurers identify patterns of behavior that aren't obvious to human adjusters.
- Processing claims. Insurers can use machine learning to automate claim reporting and processing. Policyholders are more satisfied when claims are processed promptly.
- Underwriting. Insurers use machine learning to help underwriters analyze data collected from applicants. Computers can flag errors or inconsistencies in data that underwriters might not be able to see. Computers can also check external sources such as social media to verify the accuracy of the data.
Internet of Things
Another type of insurtech is the Internet of Things (IoT). This term refers to ordinary machines (like refrigerators and televisions) that are connected to the Internet. An example of IoT is telematics, the use of electronic devices in vehicles to collect, receive, store, and transmit data over a network. Many businesses that own fleets of vehicles equip their autos with GPS-enabled devices. These devices can be used to track the vehicles' location and to measure drivers' speed, braking patterns, acceleration, and other habits.
Commercial auto insurers can use data from the devices collect to provide discounts, improve safety, and analyze accidents.
Another type of IoT some insurers are using is wearable technology. One insurer that has embraced wearables is John Hancock, a life insurance company. According to Insurance Journal, the insurer announced in September of 2018 that it plans to cease offering traditional life policies. Instead, it will focus on its Vitality policies, which are sold in conjunction with a Fitbit tracker or Apple watch. Customers who wear the devices and meet their exercise targets are rewarded with a premium discount or a gift card.
While most smartphone apps offered by insurers are designed for individuals, a few are directed at businesses. An example is an app called Hot Work offered by FM Global, a commercial property insurer. The app is designed for policyholders that perform welding, cutting, soldering, and other activities that can trigger fires. The app can be used to perform a variety of functions such as creating hot work permits, calculating recommended fire watch and monitor times, and collecting and exporting permit and site data.
Another example of a business insurance mobile tool is Chubb's Travel Smart app. The app is designed for policyholders (and their employees) that have purchased Chubb's business travel insurance. Customers can use the app to learn important information about their travel destination, such as potential threats and VISA requirements. They can also use it to locate emergency medical services or security assistance.
Over the last eight years or so, numerous insurers have begun using drones. Property insurers have found these devices particularly useful for inspecting property situated in places that are hazardous for humans, like rooftops and disaster areas. Casualty insurers might also find a use for drones, say for inspecting and photographing an auto accident site.