Lack of Innovation in the Insurance Industry
The insurance industry is slow and old-fashioned, it needs innovation desperately.
Administrative and operational costs contribute 12–18% of the total insurance market. In the era of automation, where every industry is being automated, insurance stays behind. It’s hard to see a little innovation in this 400 years old industry.
It’s not that innovation is not happening. it is happening but it didn’t disrupt the industry yet. The insurtech market (a term derived specifically for the insurance industry) is huge and growing every year, but we are not seeing any notable changes in the existing insurance companies.
What could be the reason?
We know for sure that there is a lot of money in the insurance industry. What if the big insurance players don’t want to improve and automate the processes because it would simply cut down their big profits? In the era of AI, big data, blockchain and IoT, we are still facing old-school form filling processes in insurance.
The insurance value-chain, which consists of important insurance processes, lacks technological advancements. Following are the main elements of the insurance value-chain:
- Risk analysis
- Underwriting and policy creation
- Marketing and Distribution
- Operation and servicing
- Claim management
All mentioned elements can be modeled into efficient, faster and automated processes. The insurance companies have the data to innovate on these processes, but they just lack the execution.
Data plays an important role in risk analysis, underwriting, and claim management. With the help of data, the risk associated with every insurance product could be predicted upfront with AI.
With the help of blockchain, all data could be collected over an immutable ledger. This way analysis models could be updated periodically according to the change in behavioral patterns.
Damages and casualties could be detected automatically with IoT devices and claim payments can be made faster and efficient.
The current insurance industry is still far from the massive adoption of innovation where overhead costs could be cut down by 20% (which includes operational costs, underwriting costs, and claim management costs).
However, some startups have introduced some really advanced insurance products which show the potential of innovation in the industry. Notable mentions are Lemonade and Etherisc.
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