Creating technologies perfectly tailored for specific industries is becoming more and more popular in the era of broadly-defined computerised society. Every market requires specific tools and means, such as dedicated IT systems, to acquire new customers and maintain profitability. Modern tools adapted to the needs of the financial industry (fintech) or technologies created for the public sector (govtech) may serve as good examples. It is therefore no wonder that the so-called insurtech is yet another area of this kind, where modern tools are created specifically for the needs of the insurance market.
As the products based on modern technologies started becoming popular, the insurance market, quite naturally, voiced concern and doubts related to the ongoing changes. A lot of questions were asked about the possibility of insurance companies to develop because they approached the technological revolution with reluctance.
In this article, we would like to address a few of those questions. We have experience in cooperating with various types of companies related to the financial market and we specialise in telematics systems dedicated to the insurance industry.
It has been a few years since the insurance market – one of the most conservative sectors of the economy – noticed a trend in their customers’ behaviour: customers expected their experiences from the banking sector to be reflected on the insurance market. They started expecting a greater degree of innovation and the use of modern technology. For insurers, these expectations turned into deep concerns about the necessity to change business models and introduce strategies based on technological innovation.
Apart from that, the first innovative startups appeared and began to win their customers with modern products. As could be expected, this aroused not only concerns but also competition and struggle for market shares.
However, it soon turned out that cooperation is much more beneficial than competition for both sides. Insurance companies are backed up with a large capital, which is necessary to commercialise innovative solutions, while technology companies have ideas and expertise in technologically advanced products.
This is how a natural symbiosis in the insurtech came into existence.
The investments in technology companies within the insurance market increased by a factor of five in the last three years, and over 68% of corporations operating in this area are convinced that they need to take steps towards the development of new technologies.
According to a report on the perspectives for development in the insurtech industry by PwC, a consulting company, four trends related to the appearance of new technologies are now emerging in the insurance sector:
The same report also states that the two most important benefits of cooperation for insurance companies are cost reduction (according to 81% of respondents among entities operating in the insurance sector) and product differentiation (65% of respondents).
Information is undoubtedly the most significant currency of the 21st century economy. It is a resource particularly important to those sectors whose business models are based on the collection and analysis of data, and the insurance market is one of them. It is therefore not surprising that advanced tools for acquiring and exploring information about consumers and their behaviour are one of the main values resulting from the cooperation between insurance and technology companies.
Insurance companies have access to a variety of information about their customers, which is an unprecedented opportunity to create business models that consider all kinds of risk, even the slightest ones. Having data on consumer behaviour, insurers can create services characterised by the lowest possible number of customers with claim records, while appropriate incentives attract rich consumers and make the insurers earn a lot. Based on precise data, it is possible to create customer profiles or determine how much a given person deviates from the model profile. During the insurance period, the insurer may already inform the user whether their activity will increase or decrease the premium consideration. To respond to the market dynamics, insurance companies which use the potential of modern technology are also able to quickly and effectively change the portfolio of their services by adapting their strategies to the emerging challenges.
The market already offers insurance options in which our individual skills, such as driving a car, affect the premium rates. Thanks to such an individual approach, drivers considered potentially risky are discouraged from using the services of a particular insurer.
Collecting and processing information about users is one of the doubts which may arise when we decide to create insurance products based on big data. These doubts, however, turn out groundless to a large extent. A survey by Deloitte indicates that customers are willing to share their data if this will have a positive impact on the quality of services offered to them. According to the same survey, insurance companies are among three types of institutions with which people are willing to share information about themselves. Only banks and employers achieved better results in this respect.
Customer loyalty in the insurance sector is very difficult to maintain. Motor insurance is frequently perceived as a kind of “tax on driving”. At the same time, drivers feel that they receive very little from the insurers in return. The lack of customer loyalty, in turn, translates into real losses of enterprises and leads to high rates of resignation and high price sensitivity, among other things.
Additionally, trends in related industries have a large impact on customer moods and attitudes. The broad computerisation of the financial sector and the rich portfolio of modern and easily available financial products form specific consumer expectations towards the insurance market. Customisation and an individual approach are often the basic determinants of those expectations. According to the report by PwC mentioned earlier, nearly 80% of customers want personalised insurance offered to them exactly when they need it.
We can answer these challenges by combining modern technologies with traditional products offered by insurance companies. Among these technologies, telematics deserves particular attention, as it is increasingly popular in the motor insurance sector. It is currently one of the most effective tools used to create insurance products ideally suited to the needs of a particular driver. Telematics makes it possible to effectively maintain customer loyalty and create new channels of contact and sales.
UBI, or Usage-Based Insurance, in which the insurance is based on the driver’s individual driving style, is an example model from the insurance industry in which we can create benefits for both insurance companies and their customers. In a nutshell, this product is based on advanced analyses of mobile phone data (GPS, accelerator and gyroscope readings) and/or on-board computer data. These kinds of data, connected with the available information on the road (road type, specific areas), driving conditions (time of day, rush hours) and weather (rainfall, temperature, humidity, black ice) help gain insights into the driver’s skills and behaviour on the road. As a result, insurance companies know a lot about the current portfolio of drivers, which in turn allows them to manage risk effectively. The driver, on the other hand, gets a product which is individually tailored to their needs.
The benefits of this model have been already noticed by the pioneers in the insurance sector, which industrial statistics and forecasts seem to confirm. According to the latest IHS Automotive report, the use of UBI-type insurance products will increase from the currently estimated level of 12 million subscribers to over 142 million users in 2023. Similar data is presented in a report entitled “European Motor Insurance Study. The rise of digitally-enabled motor insurance” by Deloitte. According to the report, the market share of individual motor insurance leveraging digital technologies may reach 17% in European countries. This translates into a market value exceeding EUR 15 billion.
Given the growth rate of the insurtech market and the benefits of implementing new technologies in the insurance sector presented above, the cooperation of corporations from this market with technology companies will certainly help gain a competitive edge and translate into the success of companies operating in this area.
If you are looking for a technology partner to implement your project, or you want to learn more about the telematics systems we have created, please familiarise yourself with our portfolio.
Report “Opportunities await: How InsurTech is reshaping insurance’
Report “European Motor Insurance Study. The rise of digitally-enabled motor insurance”
Sparkbit’s research lab is working on a new concept of visual telematics. In the next posts I’d like to share with you what does this concept…Read more