Technology in Insurance

August 2020

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InsurTech Overview

• InsurTech is the combination of insurance and technology solutions for

enrollment, insurance claims processing, underwriting, policy administration,
data insights, fraud detection and more. InsurTech is disrupting the insurance
industry by providing cost saving solutions and better customer experience for
insurance companies.
• The term “Insurtech” seemed to have emerged when Germany-based 
Friendsurance created a peer-to-peer insurance community around 2010.
• Inspired by Facebook, Friendsurance co-founders were looking for an industry
to disrupt using a social networking business model. And the insurance
industry provided that great opportunity.
• Insurtech is exploring avenues that large insurance firms have less incentive to
exploit, such as offering ultra-customized policies, social insurance, and using
new streams of data from Internet-enabled devices to dynamically price
premiums according to observed behavior.

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InsurTech Enablers

Internet of Things (IoT) technology

• IoT involves the internetworking of physical devices, vehicles, buildings and other items (also referred to as "connected
devices" and "smart devices"), embedded with electronics, software, sensors, actuators and network connectivity that enable
these objects to collect and exchange data. It allows insurance companies to receive insights and data about their
policyholders’ behavior. Companies can then adjust their risk modeling and policy premiums based on that data.
• For example,
– Car insurers can price policies based on a driver’s behavior via telematic IoT devices installed in their cars.
– Health insurance companies use IoT technologies like wearable devices to gain access to health data (activity levels, heart rate, and more). The result is
personalized insurance policies.

Big data and analytics

• In the insurance market, Big Data and Data Analytics could be used in various processes, such as product
offerings, risk selection, pricing, cross selling, claims prediction and fraud detection, for example to offer
customized products and to allow automated underwriting.

Comparators and Robo Advisors

• Online services that provide automated, algorithm-based product comparison and advice without
human intervention

Insurance Policy Administration Systems

• Insurtech companies use blockchain technology to develop a single version of claim documents so that all parties can manage
the claim in real time – a way to make insurance claims management easier and more cost effective.
• Insurtech companies also use blockchain to develop paperless contracts in an efficient manner that is easy to authenticate.

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InsurTech Enablers

Artificial Intelligence and machine learning

• Insurance companies use artificial intelligence  and machine learning
to get meaningful insights into modeling risk, modeling demand,
detecting fraud, processing claims, and underwriting. AI and ML can
also be used to automate repetitive processes, optimize risk analysis,
and improve customer interactions.
Software as a Service
• Software as a service (SaaS) platforms seamlessly connect various
players in the Insurtech industry. 
• This on-demand software is typically hosted by third-party companies
on their own servers and delivered through the internet. Common
SaaS examples include Dropbox, Salesforce and Shopify

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InsurTech Enablers

E-commerce Platforms
• Comparison websites like policybazaar.com, healthinsurance.com allow
consumers to compare and sometimes enroll in health insurance or
Medicare policies.
• People are turning to online comparison websites because they give
them control, empowering them to compare options at prices that
work for their budget and lifestyle.
 
Smartphone apps
• Smartphones being the constant companion of a person, can
potentially give invaluable data about a person’s health related habits,
trends related to travel and risk appetite related data.

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InsurTech way forward

Looking ahead, we anticipate 3 key InsurTech trends:

• Partnerships between traditional insurance carriers and InsurTech startups
will form to help cut costs and improve business processes.

• Now more than ever, insurance companies are segmenting customers as

individuals rather than groups. That said, there may be a rise in IoT as a
way to continually access customer insights and behavior to refine
insurance products and services.

• Insurance agents and brokers will be empowered with more digital tools
and services to make their lives easier. InsurTech will play a big role in
streamlining data and back-office functions - this is especially important to
agents who deal with multiple carrier plans.

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P2P Insurance

• P2P insurance was drawn as a tool to solve two major sales barriers of the
insurance industry that are, high premiums and lack of transparency.
• P2P insurance allows participants to select insurance pool with friends, members
of the family or simply anyone with whom they share interests and activities. In
the scenario of no claim for a certain period, a portion of their money is returned
to the members of the pool. In case of larger claims that amount to more than the
pooled amount, the insurance company settles it. According to Friendsurance,
nearly 80% of its clients received some money back from their paid premiums.
• Business owners, Uber drivers, etc., come together to absorb each other’s risks. It
involves contribution from everyone to insure each other’s losses.
• Example : Lemonade has revolutionized property insurance, by making
homeowners’ and renters’ insurance available in a day. In a metropolis like New
York, where it is difficult to get even an online quote for insurance, the Lemonade
app helps in getting a quote in less than 3 minutes.
• In car insurance, Carpool, a Thailand-based P2P insurance broker proposes to give
an opportunity to good drivers in order to form insurance groups on their own,
where deductible is contributed by members to the shared pool.

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 Advantages of P2P Insurance

• Less Fraudulent Claims

Peer group members know each other and are willing to invest their money based on
trust, which portrays faith in one another’s ability to keep losses to a bare minimum,
thus being beneficial to everyone.
• Eschewal of Traditional Brokers
Peer group members rely on each other for risk management, prevention of losses and
to sell insurance, which enables them to stay away from traditional agents and brokers.
• Reduced Premium or a Dividend
All participants with no claims are rewarded by either giving them a dividend or reduced
policy premium for the next policy period (from any amount that is left in the pool at
the end of the year).
• Backup of Traditional Insurer
If the claim amount is exorbitant, then traditional insurers cover up these losses, which
safeguard the insured’s requirements.
• Shared Responsibility
Business owners and consumers assume shared responsibility and make decisions on
the group’s risk selection, risk management, underwriting and marketing, with
appropriate guidance from the insurer’s management teams.

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Efficiency of P2P Insurance
• P2P insurance companies claim that they can lower the insurance premiums. By stripping down the
costs of running a large company, nimble insurance startups have fewer extra costs so they can
charge less for the premium.
Cost • Lemonade renters’ insurance for an apartment in Manhattan, NY City begins at 5 dollars per month,
instead of almost 9 dollars a month from Jetty insurance. That’s an extra $48 a year

• Getting insurance through a traditional broker can take a while. After submitting an application,
customer has to wait while the company assesses level of risk. There are many forms to fill out, often
full of technical jargon.
Speed • P2P insurance companies are born in the digital age, so the process is streamlined. A few clear
questions need to be answered online and the customer receives a quote in minutes. Payments can
be made online so that the customer’s coverage is up and running the same day.

• Concerns about lack of funds for P2P insurance companies have been mitigated by purchasing
additional insurance from major banks. Companies such as Lemonade pay 20 percent of their
Payout revenues or more to “reinsure” their funds. This guarantees that they will be able to make good on
the claims of their customers.

• P2P insurers have streamlined the process of payouts. In some cases, customers can take pictures
of damage, fill out very basic information, and upload that onto an app.
Ease of • Payouts are made in just a few minutes. This benefit cannot be overstated, especially for anyone
use who has ever had to file a claim and go through the bureaucratic process of dealing with traditional
insurers.

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 Challenges of P2P Insurance

• Maintenance of Close-Knit Group

A large social circle in this generation of social media has resulted in the challenge of
maintaining a close-knit group. These large groups have a complicated risk profile, which
ends up looking like a traditional insurer.

• Insurance Regulatory Compliance

Insurance Regulatory Compliance lacks complete clarity, and there are numerous
actuarial uncertainties and challenges with respect to 
risk management and underwriting practices.

• Adoption of P2P Model

The dominance of traditional insurers is powerful, and people would be hesitant in
adopting the P2P model.

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 Case – Rupee circle

• Rupee Circle ties up with TATA AIG to insure P2P loans.

• P2P lending company RupeeCircle has tied up with TATA AIG General Insurance
Company for providing to its borrowers insurance cover against accidental death,
disability and job loss.
Borrowers taking a personal loan from RupeeCircle will be insured against accidental
death and permanent total disability.
• The insurer will also cover the EMI of 3 months if the borrower is admitted to a hospital
for more than 30 days or if the borrower suffers a job loss for more than 30 days.
• The tie-up is likely to increase both lenders’ and borrowers’ trust towards the platform
while making financial inclusion more viable.

• RupeeCircle was the first online lending player to receive the NBFC-P2P licence from
RBI in 2019.

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 Case – Lemonade

• In the US, the first P2P insurance company and still the only major player is 
Lemonade - the full review is available here. The company uses AI to produce
fast and competitive blockchain insurance quotes, covering property and
casualty insurance in the form of renters and homeowners insurance.
• Lemonade’s biggest selling point is its transparency. It takes a 20 percent flat
fee off your premium to pay for salaries and running costs and another 40
percent to cover reinsurance. The remaining 40 percent is used to pay claims,
and anything left over at the end of the year goes to a charity chosen by
customers.
• https://www.moneyunder30.com/lemonade-insurance-review.

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Technology Innovations
Examples – Insurance Industries – They could reduce costs / risks and also capitalize on new markets
 InsurTech – Future Outlook
• Changing the channel: Partnerships with product makers and distributors, and embedding
insurance into other products and services may enable customers to select products that
best fit their lifestyle.
• Underwriting by machine: Technology advancements including AI innovations and
algorithms will likely personalize insurance products and price points for customers.
• Rise of the flexible product: Time-flexible, event-driven, modular and adjustable coverage
may evolve to accommodate life stage, lifestyle & wellness changes among consumers. 
• E-Z life insurance : Insurers who introduce flexible term products, and master digital
distribution without compromising underwriting are likely to win in the marketplace.
• Usage Based Insurance ( Pay as you go ) – Personalization of insurance through usage &
behavior based models in auto coverage leverages new ways to capture driving data.
• Self – Directed Services – Use of Self – Service tools to reduce cost of serving customers
and improve simplicity, transparency and speed of fulfillment
• Remote Access & Data Capture – Use of non-traditional data capturing solutions including
remote devices to improve risks and loss assessments.
• Shift from Probabilistic to Deterministic Model - Real time data capture and monitoring
technology enabling insurers to shift claim models.
• Robotics and automation in core insurance – Increased use of capabilities such as robotics
and AI to automate core insurance functions.
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