Insurtech has been all the buzz in the insurance industry recently, and for good reasons. For the insurance companies, it brings the promise of better anti-fraud protection, cutting operational costs, and converting new clients with attractive packages. For policyholders, tech disruption is likely to mean lower prices and better insurance plans. Overall, things are looking great for all stakeholders.
Or are they?
For a highly regulated industry like insurance, tech disruption simply doesn’t happen overnight
I, for one, am reluctant to ride the hype train when it comes to insurtech. For a highly regulated industry like insurance, tech disruption simply doesn’t happen overnight, and it’s probably going to look a lot more like a gradual transition than a revolution. Let’s discuss some of the factors that are likely to hold insurtech back for a while.
Privacy concerns on the rise
One of the most promising recent tech developments in the industry has been the incorporation of Internet of Things (IoT) for health and life insurance underwriting. Or more precisely, of IoT-generated data. Information from fitness wearables is so useful to insurers that the North American company John Hancock has entirely switched from traditional plans to ‘interactive policies’, where the Fitbit or Apple Watch is the basis for underwriting. This approach has also been proving successful in other markets, such as South Africa or the UK.
But with the public becoming more and more aware of data security and privacy, not all coverage of the news has been positive. Critics are worried that trusting insurers with access to a constant stream of information about their clients is a dangerous move. In all honesty, they can’t be blamed – IoT devices have a pretty bad
reputation for product security.
If you’re wondering who goes around hacking people’s Fitbits, remember that we live in the age of internet surveillance. The NSA in the US, for that matter, has been repeatedly shown to exploit devices’ security flaws to gain intimate information about the US and foreign citizens.
Insurers certainly don’t want to find themselves on the wrong side of the data privacy discussion. Using IoT for policy underwriting might be a great financial move, but it could also backfire on the PR front.
The complicated case of compliance
IoT devices provide huge volumes of data that can no longer be processed by a human in a timely manner. Artificial intelligence offers a solution for fast information processing: it can be used in the underwriting process and claim management.
But there is a huge obstacle to insurers working with this technology. AI is a so-called ‘black box’ technology – we feed it data and get back results but we don’t know what happens in between. The decision-making process of the algorithm is so sophisticated that humans can no longer follow it.
This lack of transparency translates directly into lack of trust. If no one can explain what goes on between input and output, how to do you prove that you comply with relevant laws, policies, and regulations? And how do you answer to clients when they question their quote or claim settlement?
Insurtech has been all the buzz in the insurance industry recently, and for good reasons
Explainable AI is a growing field of data science but, for now, the only way to account for AI’s calculations is to make it less complex. And that also means lower accuracy of computing. As Tapoly’s CEO Janthana Kaenprakhamroy explained on the Insurtech Insider podcast: “AI won’t take over the human jobs any time soon. We will still have to be there to monitor the process. True AI is probably a few years away from now.”
Move fast and break stuff … but don’t leave your customers behind
There is a lot of change happening in the insurance industry but where is the consumer in all this? James Maudslay, Global Head of Insurance at Equinix, warns against digitising faster than policyholders can catch up. Millennials tend to prefer fully digitised communication and they’re open to buying policies from AI-powered chatbots. Other customers, however, enjoy the way they’ve been communicating with their insurer so far and don’t want change.
Instead of completely scrapping call centres and face-to-face appointments, Maudslay suggests a ‘hybrid arrangement’ where customers can choose how they connect with an insurer. Creating a smooth transition period and balancing out the needs of existing and new customers is one of the bigger challenges ahead.
Tech disruption in insurance is happening behind closed doors, so it’s hard to assess what stage we’re at right now. As is the case with AI, insurers may be using cutting-edge technologies but they’re nowhere near reaching their full potential yet.
We’ve seen the power of buzzwords in recent years, with stock increases for companies that put the words ‘blockchain’ or ‘bitcoin’ in their name, for example – so insurers’ claims that they’re working with blockchain or replacing their employees with AI should be taken with a pinch of salt. Time will show which of the new technologies will become an integral part of the business and which turn out to be pure hype.