29 February 2020
ZhongAn leverages artificial intelligence and big data not only to provide additional services but also to develop products and services that meet changing needs. Photo: Reuters
ZhongAn leverages artificial intelligence and big data not only to provide additional services but also to develop products and services that meet changing needs. Photo: Reuters

Insurance tech revolution is more than just digitalization

Insurance is being revolutionized by the rapid pace of technological innovation. This has huge implications for the industry.

Increases in the volume of electronic data, the ubiquity of mobile interfaces, and the growing power of artificial intelligence (AI) are just a few of the developments disrupting the insurance industry.

This disruption often comes in the form of “insurtech” startups that are breaking into an industry of powerful and entrenched firms, and rivaling them to provide convenient, personalized, and sometimes cheaper, insurance products that appeal to an increasingly mobile-centric world. A great example in Asia is the meteoric rise of ZhongAn, a digital insurer in China.

The firm’s entirely online experience model has been a huge success. It has gained more than 400 million customers and sold over 10 billion policies sold, making it the largest insurer in China. 

With the ability to process 13,000 policies in a second, ZhongAn leverages artificial intelligence and big data not only to provide additional services – which has been the focus of traditional insurance players – but also to look at the evolution of society and develop products and services that meet changing needs.

It is also revolutionizing distribution channels. By analyzing the behavioral data of more than 300 partners, it is able to identify situations where a customer may want to buy an insurance product and create a channel to sell that product.

Another example is Lemonade, a US upstart that has used technology to offer cheap insurance to homeowners and renters. Targeting the younger generation with an entirely app-based customer experience, the company claims it makes the insurance process as quick and painless as possible by having “bots instead of brokers and algorithms instead of paperwork”.

Using big data to work out premiums and AI to evaluate claims, it boasts that it set the world record for settling a claim from approval to pay out – three seconds.

Traditional insurance players respond

The arrival of disruptors such as ZhongAn and Lemonade has caught the attention of traditional insurers. Given the rising appetite for insurance products among Asia’s growing and technologically-savvy affluent class, and insurance systems that are inadequate to meet their individual demands, the gap insurtech firms are filling in the market has not gone unnoticed. In response, insurance companies are themselves increasingly looking to use technology to create new products and drive customer affinity.

For example, technology is making it easier for insurance companies to monitor what their customers are doing. In health insurance, AIA and Manulife stand out in Asia for giving customers advice on the best way to eat and exercise. Through devices such as Fitbit and Apple Watch, they measure customers’ activity and reward them with discounts on their insurance or other offers.

Others are using new technologies to provide new services for customers. For instance, in Britain, Aviva has created a digital GP app to provide customers easier access to around 1,000 family doctors. The app enables them to book video consultations, receive remote diagnoses and obtain advice on simpler medical queries via a live chat facility.

New technologies are also leading to the growth of on-demand insurance or pay-as-you-go models. This has been most prevalent in travel insurance, where customers are able to choose a package for the country/region and length of time they want insurance cover for or car insurance, where policyholders can choose what times they want to be covered.

A treasure trove of data

New technologies are simultaneously transforming insurers’ investment activities. For example, social media networks such as Twitter and Facebook provide a vast potential treasure trove of information. Thanks to modern computing power, investment managers can quickly process and make sense of that information to decide whether to make investment decisions.

Furthermore, technology is providing insurers with an opportunity to manage their balance sheets with a level of precision previously unimaginable. While insurers have long held the ability to compare prospective returns from different investments or to assess how well different assets match liabilities, it is now possible to add a new layer of complexity by understanding the precise impact on their balance sheet of capital charges and different accounting treatments.

It is not all apple pie, though. Technological developments have brought with them a sharp rise in incidences of cybercrime. While this has provided a major growth opportunity, regulators and other stakeholders rightly want to be sure insurers understand the risks they are underwriting. However, technology could, once again, provide solutions. For example, AI can be used to search for security weaknesses and deploy solutions in real-time, or to redirect attackers away from valuable data.

It is clear insurance is heading towards a much more digitalized future, one that will render the existing landscape almost unrecognizable in the coming decades. This will make it essential for existing major insurers to embrace technology to stay relevant.

However, it should not be adopted merely to merely achieve digitalization. To win in this new landscape, insurers need to competently demonstrate the ability to leverage technology to create a seamless and attractive customer experience and to tackle challenges the industry has long faced.

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Head of Insurance Investment Strategy, Aviva Investors