Which Areas in Insurance will Technology Disrupt Next?

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Which Areas in Insurance will Technology Disrupt

Insurance is still the old bastion where the ‘old boys club’ rules the roost and presides over the legacy technologies of an era bygone. While it is a stretch, humor me in imagining the erstwhile Titanic First Class Smoke Room (see here for more) where only the most privileged were allowed to enter.

The insurance game is played by the rules, set by the few who, having the benefits of deep pockets, deep influence, and deep experience, manage to call the shots by using aging technologies. To add, they also have a slight (sic) aversion to things modern let alone futuristic.
With an aim to disrupt the traditional insurance business, I am going to put the case forward for the target areas for deploying the technology.
All other things aside, digital insurance has the least cost of sales. In other words, direct selling through digital channels and digital policy/claims management not only has the least expensive sales cost but is also the most efficient business process overall.

The digital lifecycle may have other drawbacks like high claims ratio (think moral hazard). Still the cost of sales is much lower due to relying on digital experience. The Lemonade example (“Forget Everything You Know About Insurance.”) is a worthwhile mention. While the pundits have already written their epitaph, one thing is for sure; Lemonade demonstrated how quickly you can sell directly to the Consumer with an awesome digital experience.

Think about that for a minute. If they and some others like Root have solved the selling cost challenge, it is highly probable that they or someone else will solve the high claims ratio issue as well. More than likely, the solution is going to be based on high tech. Think big data Underwriting, predictive Underwriting and so on. It is no wonder that the combined ratio of digitized insurance lifecycle is far more optimal than traditional baseline insurance lifecycle.

BTW, there is historical proof that many challenges of humankind or business were solved incrementally rather than in one shot. So, let’s give some credit to these players who helped move the needle.

The areas where the technology is going to produce the most ROI (Return of Investment) in the insurance industry (also called “InsurTech“) is as follows (in descending order):

  1. Using big data in underwriting, that is risk pricing
  2. Digital marketing (including social media) and direct online sales of insurance products 
  3. Predictive underwriting based on AI
  4. Data analytics and AI models (related to above)
  5. Self-managed claims
  6. Technology for fraud prevention including geospatial analytics, Symantec/social relationships
  7. Telematics, wearables, and mobile apps that voluntarily track
  8. Automation of underwriting, claims, payments, Renewals and Compliance
In summary, risk pricing (Underwriting) and digital marketing and direct sales will get you the most ROI in digital insurance.