The FinTech Effect on the Insurance Industry:
Some FinTech companies that are relatively new entrants in the insurance sector are giving several well established players a run for their money. This is mainly because the former are using technology to plug the gaps present in this realm. Traditional companies have already taken note of the disruption, with many viewing it as an opportunity to innovate and improve so they may successfully retain their customers.
FinTech insurance or insurtech companies aim to do away with the hassle of choosing from a plethora of insurance covers. Walter de Oude, CEO of Singapore Life, opines that “The main problem our industry faces is that people think life insurance is complicated, and that it is a hassle to find the right solution.” He feels that insurtech makes his company “nimble and efficient,” and adds that while some might view this trend as disruption, it is basically just “changing the way things work so that customers can benefit.”
Where Things Stand
The World Insurance Report 2017 put together by Capgemini and Efma showed that more than 30% customers rely on insurtech solutions. Several FinTech startups are attracting probable customers through mobile applications and some are even making use of wearable technology. The 2016 Q2 report released by KPMG suggests that there has been a rise in the number of traditional insurance companies tying up with FinTech companies to handle all kinds of proof-of-concept initiatives. By leveraging technology, insurtech companies are coming up with new ways of underwriting, processing claims, distribution, and integration.
According to Gav Smythe from iCompareFX, “Customers are looking for online solutions and a certain degree of personalization in most realms, and there’s no reason why this field should be any different.” He adds, “The insurance sector is realizing that the need of the hour is to embrace technology, even if it means collaborating with FinTech companies.”
An aspect that has worked in favor of insurtech businesses is the presence of accelerator programs that mentor and help them scale up. Examples of these programs include Germany’s Allianz X that is part of the Allianz group, and UK-based Startupbootcamp.
As of now, traditional insurance companies still manage to find a fair share of customers. The World Insurance Report 2017 showed that around 45% of the survey’s participants felt that mainstream insurance companies fared better than their insurtech counterparts when it came to fraud protection, security, and brand awareness.
Improving End-User Experience
No matter which field you look at, technology continues to play a crucial role in enhancing customer experience. Insurtech companies, for instance, are relying on mobile delivery for reaching, engaging, and retaining customers. A recently conducted FinTech survey by PwC suggests that the use of mobile applications will increase considerably by 2020. Around 75% of the respondents felt that the biggest impact of FinTech will be increasing focus on customers.
What Can the Older Players Do?
Traditional insurance companies need to adapt to evolution in technology if they hope to remain relevant. These companies need to be open to change which may include generating new ideas, identifying areas of growth, and even changing organizational culture if required. Looking beyond FinTech to find partners that come with different perspectives and experiences may help in finding new means of revenue generation. Investing in technology to keep up with existing industry standards is also important.
The insurtech industry is still in its nascent stage, which basically means that it has great potential to grow. However, the sector faces its share of challenges too. For example, customers continue to complain of less-than-desirable experiences, and rising expectations remain hard to meet. A significant number of consumers feel that security is a concern that keeps them from entering the FinTech market. In addition, while the business model of the insurance sector has remained the same for quite some time, the shift in paradigm may serve as a roadblock in adapting to FinTech.
Blockchain technology has the potential to further disrupt the insurance sector because it can transform service efficiency and manage different kinds of processing models with ease. Some areas this technology may be used to good effect include fraud detection, IoT product development, and claims processing. Among other things, a blockchain system can simplify confirming customer authenticity, validating ownership, monitoring claims history, time stamping policies, and recognizing fraudulent behavior.
Challenges for Regulators
Insurance regulators may face some challenges going forward. They will need to understand how innovations work and their applications to make sure that new business models and products go through adequate assessment. Regulators will need to strike a balance between benefits and risks, while creating an environment that encourages innovation through channels such as innovation hubs and regulatory sandboxes. They may also need to evaluate existing regulation frameworks and make adjustments as and when needed.
FinTech has already created ripples in the insurance sector and it is only natural for the bigger and more established companies to pay heed. The future, without doubt, will simplify matters for customers, and how the big names handle this change in tide remains to be seen.
John works as a researcher with iCompareFX, a website that specializes in comparing overseas money transfer companies from different parts of the world. He also moonlights as a mystery shopper, getting all the information there is to be had about the top players in this field.