Re-Imaging Insurance in the Digital Age

From marine insurance four hundred year to a retired ‘uncle’ selling LIC policies to us at family gatherings, insurance has evolved at a slower pace than rest of its peer in BFS.

Today, with advent of digital technologies in every industry, insurance is fast catching up too. With even cattle & cows getting on IoT bandwagon through tagging of ‘wearables’ for data collection to help farmers, for many years, traditional insurance business model has proved to be remarkably resilient. But it too is beginning to feel the digital effect. It is changing how products and services are discovered, purchased and delivered, and increasingly it will change the nature of those products and services and even the business model itself. 

In the earlier scenario, insurance had to be sold hard, and primary reason for many to buy a life insurance would be for tax deductions, rarely people would buy a term policy to stay protected, but treat endowment policy as a tertiary means (after gold and land) to create wealth. Now the young generation is changing, they insure their smartphones, air tickets and travel plans on the go, with a click and very little thought.

Hence, insurance models will have to be reimagined as something more than just venues for investment, or for JIC situations. finance

 

 

Internet of Things for data collection

Digital technologies that give rise to ever-increasing amounts of data and ever more penetrating insights might make for more accurate pricing of risk, but they also help mitigate risk, reducing premiums.

Take for instance, auto insurance. Forward collision avoidance, blind-spot assist, and adaptive cruise control are already fitted in many new cars, making vehicles safer. Already, 20 percent of vehicles globally are expected to come with safety systems by 2020, reducing the number of accidents and thus the value of personal auto insurance policies. Entirely self-driving cars could become ubiquitous in the next two decades, at which point liability is likely to shift from individual drivers to manufacturers.

Stellapps is an IoT company that created Fitbits for cows. With 300 million milch animals in India, it has been an enabler for cattle insurance.

The Insurance Regulatory Authority of India (IRAI) is looking to the possibility of using wearables and other Internet of Things (IoT) devices to improve insurance risk assessments and product development, especially in the health segment.

Even more, the IoT holds tremendous potential for insurance providers to increase safety among customers. For instance, wearable health trackers may be able to monitor alcohol levels and prevent one’s car from starting when the driver is under the influence. Insurance providers may also be able to prevent drivers’ phones from operating while their vehicle is in operation. (Apple is already planning to block texts in iOS 11.)

 

Integrated and smoother service

The luxury of self-service apps has now come to insurance.  People want to use their phones to get “life”insurance done as quickly and easily as possible. They’ve also started to get more comfortable with doing serious things, such as taking loans and buying cars, at the click of a button. It makes sense they’d want to do the same thing with their insurance, i.e. managing everything from finding the right policy and making a claim, to tracking your premium status. For instance, Policybazaar allows users to compare policies on their smartphone and choose one as per their convenience.

Now, chatbots and AI are being used to create seamless experiences for clients. For instance, when it comes to crop insurance, the soil card will carry data regarding the soil type, weather systems, expected yields and market prices, as well as insure the farmer against loss and claim of the crop insurance.  

Even in the field of logistic insurance, technology is helping by providing an integrated approach throughout the supply chain. For instance, tracking the locations visited by a specific vehicle may add to the assessment of a driver’s behavior for creating a customized policy.

 

Better customer profiling

While an integrated insurance with IoT helps to make a better experience for customers, there is one more facet to insurance in the digital age. AI is helping better customer profiling for underwriting, assessment and optimising  premium rates.

Insurance premiums are traditionally priced based on certain generic factors. For example, car insurance premium depends upon car’s make, model, age, location, etc. With technology, insurance companies can access data that will shift the premium pricing model from generic to specific.

Thus, a driver who is cautious  and does not speed much, and travels a route which is not prone to accidents, will pay less premium compared to a rash driver who often takes his car on long trips. Overall, AI will help in risk assessment and customized policy pricing.

 

Risk mitigation by fraud detection

By utilizing machine learning (ML) algorithms that improve with usage, insurance companies have expanded the integration of AI beyond fraud detection to areas such as claims management, risk assessment and pricing, sales and marketing, and customer service. According to Accenture, 75 percent of insurance executives believe AI will provide significant industry changes in the next three years.

 French AI startup firm Shift Technology incorporates this technology in their fraud prevention services, which have already processed over 77 million claims. The cognitive machine learning algorithms have reached a 75 percent accuracy rate for detecting fraudulent insurance claims.

 The three underpinnings of insurance of acquiring customers, customer profiling and fraud detection; are all facilitated by the use of digital tools in insurance.

The insurance sectors are large reservoirs of data, and with the use of modern digital tools, it will be able to ensure that the flood waters never break the code of ethics, while providing insurance as an efficient and seamless service.

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