This year insurtech grows up – just in time to address a slew of new insurance industry needs, writes Louw Hopley, founder and CEO of insurtech platform Root.
Insurtech has, in recent years, been both misunderstood and overhyped. Many saw the arrival of new technologies as a sign that the insurance sector was about to be challenged and disrupted.
But the insurance industry is heavily regulated, with underlying fundamentals that have been developed over decades to protect both customers and insurers. This means insurtech may help to change how insurance is sold and managed, but it does not change the industry itself.
Insurtech has matured beyond its initial glitz and is coming into its own as a solid foundation that traditional insurers can build on, to do things better. In 2023, insurtech will settle into the critical role of supporting – rather than replacing – incumbents.
This maturity is closely tied to five key trends we expect to play out this year:
Advanced ecosystems will help insurers innovate faster
Traditional insurers need to improve the customer experience, enhance efficiency and manage risk more effectively. Insurers need access to innovative tools, with simple low-code/no-code deployments that require minimal time and effort.
We see broad, advanced and open insurtech ecosystems gaining traction as the de facto source of digital innovation tools for insurance. Dell’s forecast for 2023 expects the entire technology ecosystem to work as a platform for digital transformation and the proverbial “walled gardens” of “closed” ecosystems to crumble.
Instead of investing in point solutions for particular business problems, insurers will tap into ecosystems as platforms for flexibility.
Budget balancing will drive insurtech adoption
Continuing the pattern of recent years, business is expected to be tough in 2023. Inflation, a looming recession and increased risk will drive businesses to review their costs and reallocate budgets to where they offer the biggest returns.
Forrester expects high inflation and weather-related losses to push insurers to pass higher costs on to consumers, at the risk of losing those customers. The analysts predict policy lapses will increase by 20%.
To reverse this trend, insurers will turn to technology to cut the costs of doing business and differentiate in a competitive market. The biggest investments are likely in areas that create efficiencies, like smart automation and robotics.
Zero Trust becomes the norm through insurtech
Cyber risk and data protection are areas where budgets should be increased. Cyber incidents topped the list of most important business risks in the Allianz Risk Barometer last year.
This means an opportunity for insurers to offer cyber insurance products to clients, but also a need to consider cyber risk when assessing overall customer risk, and a growing need to mitigate risk within insurance operations and products.
Because insurers hold a tremendous amount of personal identifiable information, their data is highly valuable on the cyber crime black market. Ransomware attacks and extortion have soared worldwide, and financial services organisations are a top target.
In 2023, we expect to see more insurers making cyber risk a top priority, and moving towards a Zero Trust model to secure data and systems. The right insurtech products and platforms can support data protection and cyber security, with tools to better authenticate users, track processes and improve compliance.
Purposeful CX is the business driver
Insurers have worked to improve customer experience (CX) and become more customer-centric for years, often with disappointing results. In 2023, we see a refocusing of CX efforts, starting by building a deep understanding of what customers actually want.
This means finding the right technology and partners to make better use of analytics, carry out thorough user testing of new products, and rapidly adapt and change course if necessary. However, innovative new products are not enough: insurers (and insurtechs) need to have a solid understanding of market needs – and be able to take products to market in a simple and accessible way.
Sustainable insurance gains importance
Growing demand for sustainable products doesn’t apply only to consumer goods – financial and insurance firms are expected to be sustainable, ethical, socially responsible and environmentally friendly too. For insurers, this means better addressing the needs of a broad base of customers in increasingly uncertain times, with accountability and transparency.
The UNEP FI Principles for Sustainable Insurance, launched over a decade ago, will become increasingly important as a guide for insurers this year. Insurtech solutions that help assess and mitigate risk, improve transparency and reduce data centre emissions have a role to play in making operations more sustainable.
This year, insurers will need to focus on resilience and strive even harder to meet the ever-changing needs of cost-conscious customers. With the right insurtech tools and platforms in place, they will be positioned to adapt and thrive in a challenging year.