Insurtech innovation: 5 trends for 2022

Insurtech has become a major part of the insur­ance mar­ket, with record-break­ing amounts spent on tech­nol­o­gy-based inno­va­tions that can rev­o­lu­tionise the sec­tor. It’s an area ripe for invest­ment – with more than $1bn (£760m) spent every month on invest­ment into insurtech star­tups in 2021, accord­ing to rein­sur­ance bro­ker Wills Re.

The momen­tum that car­ried insurtech through 2021 is fore­cast to con­tin­ue in 2022, with plen­ty of areas with­in the sec­tor ready for dis­rup­tion. But what should you be look­ing out for as the next big thing? Here are five tech trends that could trans­form the way we buy, sell and claim on insur­ance.

AI-driven cover

Matt Con­nol­ly is CEO of Sønr, a start­up scout­ing and open inno­va­tion plat­form tar­get­ed at the insur­ance indus­try, and his job is to keep track of the lat­est devel­op­ments chang­ing insurtech. 

He says the most obvi­ous trend involves arti­fi­cial intel­li­gence and machine learn­ing. While the appli­ca­tion of AI in insur­ance poli­cies is becom­ing more com­mon and wide­ly accept­ed, what’s still ripe for rev­o­lu­tion is pric­ing and under­writ­ing. 

“You’re talk­ing about cul­tur­al­ly a group of under­writ­ers on a glob­al basis being pret­ty much late to the inno­va­tion par­ty and not accept­ing all the com­plex­i­ty of the chang­ing mod­el of insur­ance,” Con­nol­ly says. But slow­ly, the indus­try is wak­ing up to the val­ue that AI can pro­vide.

In the past 12 months com­pa­nies such as Tractable have become insurtech uni­corns – com­pa­nies val­ued at more than $1bn – for what they could poten­tial­ly deliv­er to the indus­try. Such com­pa­nies use AI to try and improve the process of not just offer­ing insur­ance prod­ucts, but also pay­ing out on claims. 

“You might have a car crash and use your smart­phone to inform your insur­er,” Con­nol­ly says. AI could then diag­nose the cost of repairs by analysing images of the dam­aged vehi­cle tak­en by the pol­i­cy-hold­er.

Parametric insurance

First intro­duced in the 1990s, usage-based or para­met­ric insur­ance often relied on hard­ware. “Car­ri­ers had to pro­vide the hard­ware and cus­tomers were expect­ed to install it, use it to track their behav­iour and then return the device via mail,” says Udi Ziv, CEO of insur­ance soft­ware com­pa­ny Earnix. “There was lim­it­ed val­ue even under the most opti­mal cir­cum­stances.”

Things have changed since – and the abil­i­ty for insurtech to har­ness those changes has been key to the resur­gence of para­met­ric insur­ance. Almost every­one has a smart­phone that is capa­ble of track­ing where they are, how fast they’re trav­el­ling, and where they vis­it on a giv­en day. While there are obvi­ous impli­ca­tions for car and vehi­cle insur­ance, the real­i­ty is that the pic­ture paint­ed of our lives and habits by see­ing where we go on a day-to-day basis is a boon for insur­ers in all areas. 

It means that it’s pos­si­ble for insur­ers to more accu­rate­ly esti­mate risk against indi­vid­ual con­sumers, and make changes on that basis. Yet to prop­er­ly imple­ment that kind of para­met­ric, tai­lored insur­ance requires a lot of work with­in organ­i­sa­tions, says Jay Chit­nis, senior busi­ness con­sul­tant at soft­ware com­pa­ny Enda­va. 

“To be able to per­son­alise their offers in the first place, insur­ers need to under­stand what data is avail­able in their organ­i­sa­tion, if it is usable and how to exploit the data to get to the insight with­in it that is so valu­able,” he says. “This is eas­i­er said than done as many insur­ance com­pa­nies’ sys­tems evolved organ­i­cal­ly, lead­ing to siloed data islands that are hard to utilise.”

Low-code/no-code development

“As the mar­ket changes, com­pa­nies are strug­gling to adapt at the pace of change,” says Con­nol­ly. Low-code/no-code devel­op­ment allows insur­ance providers to cre­ate poli­cies and apps using a graph­i­cal inter­face rather than reams of code and teams of devel­op­ers. This enables insur­ers to bridge the gap between want­i­ng to launch a new prod­uct and actu­al­ly doing so.

Insur­ance prod­ucts and the apps that ser­vice them often have to go through sig­nif­i­cant test­ing, tweak­ing and qual­i­ty assur­ance process­es before they’re able to be unleashed on the world. “Low-code/no-code allows them to say: ‘Well actu­al­ly, if there’s a new mar­ket over here, we want to tap into that, so here’s some­thing – let’s go,’” Con­nol­ly says. 

Low-code/no-code demol­ish­es some of the silos that can set back real change in the insur­ance indus­try and allow it to adapt to chang­ing method­olo­gies. The risks, how­ev­er, need to be care­ful­ly con­sid­ered: what may be seen as a speedy way to spin up new branch­es of a busi­ness could be viewed as devel­op­ing ideas with­out much evi­dence of their val­ue – or via­bil­i­ty.

Blockchain

You’ve prob­a­bly heard the hype about blockchain’s abil­i­ty to dis­rupt every indus­try under the sun. But for insur­ance, it’s a true tech inno­va­tion that could make a mean­ing­ful dif­fer­ence. And that’s the rea­son why sto­ried insur­ers with long his­to­ries are start­ing to turn towards blockchain. Twen­ty of the world’s biggest insur­ers, includ­ing Zurich, Han­nover Re and Allianz, are part of B3i, a blockchain work­ing group for the insur­ance indus­try.

Up until now, the adop­tion of blockchain has lacked a true busi­ness case, says Con­nol­ly. “Why do we need to use blockchain rather than some­thing else?” is the atti­tude that many insur­ers have had. But there are now real oppor­tu­ni­ties for adop­tion. “It lends itself to insur­ance beau­ti­ful­ly,” Con­nol­ly says. “It’s just a clean, organ­ised con­tract.”  Which is exact­ly what insur­ers want, with time-stamped entries to ensure that any organ­i­sa­tion over­see­ing it knows exact­ly what has hap­pened with a cus­tomer up to that point.

The use of blockchain can ben­e­fit busi­ness­es by increas­ing speed all around. Not hav­ing to pore over dis­parate details of an insur­ance pol­i­cy and pri­or claims – because they’re all acces­si­ble on the blockchain – removes delays in assess­ments and pay­outs. It also has anoth­er ben­e­fit: an irrefutable record of a pol­i­cy and its claims builds trust with cus­tomers. “Ulti­mate­ly, you’re going to ben­e­fit from a busi­ness per­spec­tive,” Con­nol­ly says.

Embedded insurance

Per­haps the hottest top­ic in the world of insur­ance, embed­ded insur­ance relies on the con­nec­tiv­i­ty of com­pa­nies through appli­ca­tion pro­gram­ming inter­faces (APIs). It helps turn insur­ance from a prod­uct into a ser­vice. “It will change the course of insur­ance as we know it as buy­ers,” Con­nol­ly says. “We won’t be going to an insur­ance com­pa­ny to buy our insur­ance.” 

Instead, cus­tomers will go to a shop to buy a par­tic­u­lar prod­uct, such as a lap­top, and an asso­ci­at­ed insur­ance cov­er will be cre­at­ed based on our needs at a hyper-per­son­alised lev­el. Airbnb already embeds host pro­tec­tion insur­ance, as well as a guest-fac­ing host guar­an­tee, as stan­dard into all the short-term rentals it pro­vides. Sim­i­lar­ly Tes­la gives tai­lored auto insur­ance quotes along­side every pur­chase of its cars. 

Embed­ded ser­vices turn insur­ance from a bolt-on into some­thing intrin­sic, and for insur­ance com­pa­nies who man­age to lead the mar­ket, it is a major flag in the ground for their future. With some esti­mates fore­cast­ing embed­ded insur­ance will become a $3trn mar­ket by 2023, it’s a must-pur­sue option. There is one major draw­back: those brands insur­ers have spent years build­ing up could dis­ap­pear in the embed­ded world.