Historically, the insurance industry has been reluctant to change long established business models in the face of wider technological progress. However, the relationship between insurance and technology has changed more recently, as insurtech has huge potential to transform business models.
The wider insurance market is in the process of fundamental change, with the impact of technology already being felt across all sectors in all markets. The use of price comparison websites is now the norm and digital distribution is more widespread. However, the basic processes of loss notification, claims management and underwriting are little different from those used 20 or 30 years ago. Therefore, insurtech still has a significant role to play in revolutionising outmoded processes and bring huge disruption to the insurance space.
Traditional insurers are becoming increasingly involved in the insurtech space, through direct investments and strategic partnerships with technology companies. In addition, there has been a rise in the number of digital-native insurers, such as Lemonade, Hippo and Trōv, which offer services based on a technology-first approach. Their use of advanced technologies, such as machine learning and chatbots, enable them to challenge traditional insurers on several levels, including price, ease of use and customer experience. New insurers are important in the context of insurtech, as they capture market share and can therefore serve as an example to existing insurers.
Technology providers can be key to digital transformation for existing insurers. Indeed, an increasing number of vendors provide technology to both existing and new digital insurers, enabling companies to change the way they operate and generate efficiencies from implementing these new approaches.
AI has vast untapped potential in insurance. It can be used in several ways to learn, predict, adapt and either work in tandem with humans to enhance processes or, potentially, to operate some insurance processes autonomously. However, despite having high disruptive potential, the main obstacle as far as AI is concerned is the slow pace of change in the insurance industry, as traditionally companies are reluctant to alter their ways of operating. In addition, insurance is a heavily regulated industry and issues such as the ‘black box’ challenge still need addressing before mass deployment can occur; ‘explainable AI’ is still a long way off.
Despite these obstacles, Juniper Research forecasts that in the next 5 years, most of the largest insurers will aim to use AI, most likely in the area of claims operations. The gains to be made in terms of time and money savings through the implementation of AI are compelling.
Juniper Research anticipates that total insurtech premiums generated by AI systems will reach $20.6 billion in 2024, from just below $1.3 billion in 2019, with the continuing development of AI’s ability to offer enhanced, or even automated, insurance processes.
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