The global insurtech market is expected to reach $10.42 billion this year, up from $8.07 billion in 2021, and will grow from $10.4 bn in 2022 to $29.8 bn in 2026, validating that the pandemic-induced digital transformation of the insurance industry is here to stay. In addition, insurance companies are in a race to remain relevant and reduce operational costs as supply chain disruptions, geopolitical crises, labor shortages, and changing consumer habits are creating a surge in costs of doing business (see about Internet of Things in Insurance).
As a result, insurers are accelerating their investments in digital technologies, applying Artificial Intelligence (AI) and automation strategies across entire business functions.
These technologies are helping insurers operate more cheaply and far more efficiently (see 2023 New Customer & Technology Trends in the Changing Insurance Market).
But as this digital transformation continues at an ever-increasing pace, it can be difficult to keep up with which technologies to adopt. Let’s take a look at key technology trends set to shape the insurance industry in 2023.
Telematics and usage-based insurance
Telematics technology involves tracking data about a vehicle’s movements. For example, it can instantly detect accidents and even begin the claims process with the vehicle owner’s insurance carrier. Various providers, such as repair shops, can also be given access to telematics data to provide estimates or order parts. This can drastically reduce damage repair processing times and increase customer satisfaction (see 7 New Potential and Opportunity of Telematics in Car Insurance.
Telematics data can also inform insurers about their policyholders’ driving habits.
This is fundamental for usage-based insurance (UBI), a type of insurance that charges policyholders based on their actual usage rather than estimations. According to Forrester Research, UBI policies may account for 20% of all auto policies by 2024.
A typical example of UBI is pay-as-you-drive, which allows drivers to pay based on the number of miles they drive. Not only is it a more affordable option for low-mileage drivers, but it can be used to encourage customers to make changes to their driving habits. For example, to reduce their environmental impact or risk of accidents.
Shifting customer expectations toward self-service
The pandemic forced insurers to embrace technology and find ways to deliver a truly digital customer experience. Policyholders now expect to be able to interact with insurance companies remotely, and many times, without interacting with a live representative at all (see 9 Key Customer Types that Will Define Insurance Market to 2030).
Mobile applications, chatbots, and online portals are all helping customers navigate everything from price comparisons and online quotes to claims processing and after-sales service requests in one place.
Providing these self-service options has been shown to provide a big boost in customer experience and satisfaction.
For insurers, it can also mean major savings, particularly for processes requiring a significant amount of time and manual work (see How IoT, ML, AI and Blockchain Technology are Changing Insurance?). Self-service platforms that leverage visual intelligence, a type of AI, can help insurers provide estimates, process claims, and even help procure the necessary parts or materials much faster, thus keeping manual intervention to a minimum. McKinsey predicts that AI will reduce overhead on claims by 70 to 90% by 2030 compared to 2018.
Acceleration of climate-related risks
Climate change is having a major impact on the insurance industry, and only 8% of insurers are preparing adequately, according to Capgemini and Efma (see Role of Insurance in ESG).
Insured losses from natural catastrophes have increased 250% in the last 30 years, with perils such as wildfires and storms, seen as particularly impacted by climate change, causing an even faster rise in insured losses.
The key to climate resiliency is balancing risk prevention with risk management. Demand for technology solutions that can help companies leverage and embed climate-risk data into their models will continue to increase (see How ESG to Reshapes the Future of Re/Insurance?).
Roughly 53% of companies are already incorporating new data sources — such as satellite data, remote sensors, geo-data, models, and water levels — to evaluate the most accurate and detailed risk information in real time. Machine Learning (ML) can then be used to interpret this data and generate insights into the likelihood of a climate event or its potential impact.
Advances in data analytics are also enabling insurers to more accurately measure the extent of climate-related events such as floods.
Parametric insurance coverage is becoming a popular solution to deal with these risks. Instead of providing payouts based on the value and actual loss related to an asset, parametric insurance uses all of the data surrounding the potential of a specific climate event to calculate the cost of coverage. This approach can be a more affordable alternative for risk transfer so long as thresholds are calculated as closely as possible to any loss that may occur.
Surviving and thriving during unpredictable times
The insurance industry is undergoing a significant transformation as unprecedented economic and environmental challenges unfold. From inflation and the ongoing economic consequences of the pandemic to increasing climate risks, insurers must find ways to reduce costs and future-proof their businesses. Over the coming year, we will continue to see insurers double down on more flexible, customer-centric, and affordable digital solutions.
AUTHOR: Julio Pernía Aznar – CEO of Bdeo