The insurance industry is going through a changing period. What is today known as “insurtech” and refers to technology driven innovation in the insurance industry, will probably make the word “insurance” obsolete, covering every difference between the two terms.
That’s why the following glossary (that will be periodically update) has been created: to illustrate which technologies and which new economic and social patterns are creating the greatest impact on the insurance industry, innovating it even with disruptive modalities.
A – Artificial Intelligence
AI can be defined as the ability of a computer to perform functions and line of reasoning typical of the human being. Among scientists and philosophers, Artificial Intelligence is a long debated question which shows theoretical and practical aspects as well as ethical ones. In its purely computerized aspect, it includes the theory and techniques for the development of algorithms that allow machines (typically computers) to show intelligent skills or activities, at least in specific domains. The activities and capabilities of Artificial Intelligence include planning, machine learning, cooperation between intelligent agents, both software and hardware (robot), Natural Language Processing, simulation of vision and image interpretation, as in the case OCR or facial recognition.
Artificial Intelligence is the most important technology for insurance companies today, as it is founding for and enabling of a number of other technologies, such as driverless car, robo-advisor, chatbot, search engines, analytics, etc.
B – Blockchain
Blockchain is a communication protocol, which identifies a technology based on the distributed database logic, that is, a database where data are not stored on a single computer, but rather on several machines connected together, called nodes.
The blockchain is a data chain made of packets storing recent valid transaction blocks correlated by a timestamp. Each block includes the hash (a non-invertible computer algorithmic function that maps an arbitrary length string to a predefined length string) of the previous block, linking the blocks together. Such blocks form a chain, where each additional block reinforces the previous ones.
Blockchain is also a public and shared log, consisting of a number of clients. It is organized to automatically update to each of the clients participating in the network. Every operation performed must be automatically confirmed by each node, through encryption software, that verifies a privately-defined data package that is used to sign transactions. Thus providing the digital identity of those who have authorized the transaction.
The power of the blockchain lies in its ability to support new financial transaction methods, improve existing insurance processes, and track records. Blockchain-based digital currencies can support many new insurance models, in particular micro insurance and P2P. Many of the blockchain applications could be grouped into a new category of smart contracts: software developed and executed within a blockchain system. Since this technology is ironclad (and without human intervention), it is possible to develop and automate applications involving multiple players where the common concern is the trust.
Blockchain technology can boosts insurances into a new era, starting with new models of micro-insurance, P2P, and parametric insurance, described in the article with examples.
C – Customer Experience
The relationship between a customer and a brand, a product or a service: that’s what customer experience refers to, both positively and negatively. It’s about the emotional relationship created with a company (in case of insurance is the relationship of trust) but also about the more practical experience, so-called “customer journey”, that the customer faces in different moments of interaction with a company. As far as insurance is concerned, the client’s journey can start from the web, an app, or even a broker, and include different moments up to the claim for compensation.
Today the core of insurance is to increase the number of clients, and customer experience reveals itself fundamental: is the reference that drives digitalization and trials of new technologies (as AI or blockchain) and new business models (micro-insurance, cat-bonds, p2p insurance).
D – Data
When it comes to big data, reference is made to a set of quick and different information, which requires innovative and efficient forms of data interpretation to make a valuable contribution to decision-making and process automation.
Digitization increases the creation of data in a exponential way, with also Internet of Things that, in the next years, will press in this direction. Data represent a great source of information and a great opportunity for all companies, only when they make sense through artificial intelligence and analytics, driving information into real knowledge and value.
Obviously also the insurance industry is based on data, and the extras can be given by advanced analytics and data driven management, fundamental to promote “preventive insurance” models.
E – Economy, Sharing
Without a doubt one of the changing factors with the greatest impact in the insurance industry, the sharing economy (exchange and sharing of goods, services and know-how, booming today thanks to technology platforms) is a real challenge. The entire value chain of companies is threatened by the new models of sharing economy and digitization. Products, distribution, marketing and prices are being transformed.
The mutual confidence between insurance and sharing economy is at its beginning. The growth of peer-to-peer insurance is a proof thereof.
H – Hackers
While digitalization, IoT and industry 4.0 are increasing, automatically IT security is always more frequently exposed to risk. The issue of cybersecurity affects insurance in two ways: First as any other company, given the huge amount of data stored, insurance carriers may be target of hacker attacks. Second, in terms of business opportunity. Cyber-risk policies will be one of the trends of the coming years.
I – Internet of Things (IoT)
The Internet of Things (IoT) is a neologism related to the extension of the Internet to real objects and places. Through inward chips and sensors, objects can interact with each other and with the surrounding environment. Thanks to the IoT our car will drive by itself, we will monitor the health through the smartwatches and will be alerted if a parking lot is free. So the material world can be (almost) fully digitized, monitored, and in many cases virtualized. In fact, devices connected to the Internet in 2020 are expected to exceed 20 billion units.
The Internet of Things is one of the most innovative technology environments, closely linked to other technologies such as artificial intelligence and big data analytics: the insurance industry perceives a great opportunity in terms of new business models (and preventive insurance as well). There is a set of new services that can be offered at lower costs, especially in the health and smart home sectors.
M – Mobile
Probably one of the most influencing technologies of the last years (and nowaday), mobile technology (including smartphones, tablets, and applications) has been greatly affected people and business.
Insurance carriers are likely to be the latest industries to have gained the awareness of the importance of mobile devices to relate to the customer, but in insurtech is changing the approach. Not only mobile, but mobile first: this is the starting point in the business of many insurtech startups focused on a value proposition that opens and closes through a mobile application, from policy purchasing, to management and claim as well.
It’s matter of customer experience, not only focused on younger and “more mobile” generations, but also on new policies, such as on-demand ones. The mobile scenario is evolving quickly.
P – Peer-to-Peer
The banking sector, earlier than the insurance market, has been invaded by the p2p (peer to peer) service models, with social lending systems that today make banks go weak.
They are now facing the insurance sector, closely related to the culture of sharing economy. Indeed, the concept of peer-to-peer insurance is very close to the concept of mutual aid for which all the insurances have been founded. However, today’s technology platforms have offered a tool to create networks, make financial transactions, simplify and streamline processes, with obvious benefits in terms of cost reduction. The peer-to-peer policy, enabled by digital technology, makes it possible to return to the origins, in some cases taking radical forms, replacing (and threatening) traditional companies and, in other cases, collaborating with traditional companies and becoming a sort of broker.
S – Self Driving Car
Driverless car, robot car, autonomous car… there are several terms to define a self-driving car: a dream that now can be realized thanks to the merging of different software and hardware technologies, from artificial intelligence to the technology of sensor.
The problem is really relevant on the world’s industrial and technological sectors. Driverless car will shake human mobility and will stress other sectors, especially public administrations that will be required to think about new regulations about the levels of civil liability of these vehicles, involving a different circulation and a different use of the means of communication. Obviously also insurance carriers will be subjected to remarkable changes, for which “car policies” is the most profitable sector.
Originally published on InsuranceUp