COVID-19 means consumers want agile insurance products – Insurtech can deliver
- Current disruption is highlighting how agile, innovative startups are better equipped to cope
- As consumers demand last-minute insurance policies, Insurtechs are in the spotlight
A period of massive economic disruption is laying bare shortfalls in the preparedness of entire established industries across the world that last year we may have thought solid and airtight.
But as incumbent industries struggle to adapt, this period of crisis and uncertainty is bringing to light the power of technology and innovation – new digital-first services are proving they are able to weather market turbulence, in many cases, much more effectively than ‘traditional’ counterparts.
This is true in the insurance industry – an “arcane, policy-led” sector – that has been slow to embrace digital transformation, and whose market is subsequently at risk of usurpation by agile new financial services startups.
In the current climate, ‘insurtechs’ can and are showing their potential, and like many innovations seeing upticks right now – whether it’s contactless payments, collaboration tools, endpoint security solutions, or otherwise – this new sector’s success now might prove a boon to its dominance further down the line.
Ousting traditional methods
Traditional insurers employ agents to broker their policies, and their application and underwriting processes rely heavily on manual, human input.
The result is a paper application that takes weeks instead of minutes to process and often requires unnecessary in-person medical exams – which may not be possible for many people right now.
Insurtech – much like its fintech kin – is a growing movement in the insurance sector focused on using technology to gain a strategic advantage. This technology is often geared at customer experience (slick, simple interfaces and personalized products), speed of service, and competitive rates, often made possible by data technologies like predictive analytics that can lead to more accurate risk analysis.
While traditional life insurers, for example, require paper applications that take weeks to process and often require in-person medical exams, these new companies function at much lower costs than those traditional insurers lumbered with legacy IT, and can develop and deliver products in a fraction of the time.
They ultimately bring something new and attractive to an industry that has been reluctant to change. Customers using insurtech might enjoy tailored advice, real-time rate breakdowns, personalized services, better rewards, and the sense that insurance companies are looking out for their interests, not just taking a gamble on risks.
KPMG said the draw of insurtech is that it “brings positive energy, new opportunities, and rewarding outcomes.”
Insurtech amid the COVID-19 crisis
Unsurprisingly a global pandemic is a tough time for insurance companies, to make an understatement. Many firms will be liable for vast sums of money, many have also changed their contract terms, pulled out of certain markets, or aren’t covering certain aspects of claims.
In response to the crisis in the US, the Federal Reserve lowered interest rates to 0 percent – an unheard of move. Its rates set the benchmark for all interest rates which lenders and creditors charge, whether that’s mortgage, personal loans, or otherwise.
For insurance companies that take in premiums and lend it out for an interest rate, this is bad news, and especially painful for life insurance policies with guaranteed rates of interest.
For large insurers the impact will be greater; while insurtechs have less capital to fall back on, they can be more agile with the support they can offer customers, and potentially win loyalty and users going forth as a result, particularly those ready to finally close the book established players.
In the midst of the outbreak, there has been an influx in consumer demand for life insurance. Consumers want to get their finances in place and the need to do it as fast as possible, without leaving their homes. This is shining a bright light on insurtech firms that are well-equipped to handle speedy underwriting.
“Ultimately, in a pandemic like this, the insurers who haven’t automated their processes won’t be able to keep up and won’t be able to meet the fast, modern experience people expect,” Peter Colis, CEO of life insurance startup Ethos, told TechHQ.
“More consumers are thinking about life insurance right now and given the climate, they’re turning to the products that are most accessible,” he continued. But it’s not just life insurance – with a looming financial crisis, many consumers want to quickly prepare by investing in protecting the assets they have, and insurtech solutions are proving viable.
“To our knowledge, the insurtech space in general is seeing an uptick in consumer demand,” Colis said.
On the other hand, those insurers that are “flat-footed on the digital and CX front” will be forced to reevaluate their core processes, Colis warned, creating a lasting impact on the insurance industry as the disruptive tenets of insurtechs come to light.
“Once consumers see what innovative brands can do, they’re unlikely to go back to a subpar experience,” Colis said.