Insurance Article, The Insurance Times 2020, The Insurance Times April 2020

Streamlining Insurance Value Chain in Sync with Emerging Technology Trends

In the second decade of the 21st century, we witnessed rapid technological advancement at phenomenal speed. In just about 8-10 years, a significant part of human life was affected by advanced technologies. This technology disruption changed considerably every industry all over the globe and the insurance industry is no exception.

The ever increasing use of internet, mobility and social networking have changed the game and created a new generation of customers who demand simplicity, speed, transparency and ease in their interactions. These trends will accelerate, leading to a situation where customers will be more willing to buy directlywith the help of their online and offline trust network of friends and acquaintances in taking an insurance-relateddecision.

Streamlining Insurance Value Chain

As the advanced technologies continue to disrupt the insurance sector, the industry will have to move from its current – ‘reactive’ mode to ‘predict and prevent’ mode. And, this evolution will have to be at a faster pace than ever before as the stakeholders in the insurance value chain like the intermediaries, consumers, insurers, Insurtech firms and TPAs become more adept at using new technologies.

To stay competitive in this new landscape, insurance companies have started taking a fresh look at the value chain – including products, distribution methods and service models – through a digital lens.To gain a competitive edge, several insurers have already deployed automation in areas like new business underwriting, renewals, claims processing, finance, and some more are following suit.Modern digital engineering can provide a competitive advantage on any or all parts of the value chain (see Figure 1).

Following are the emerging insurance industry technology trends, which are expected to impact the domain. They will help those vendors who embrace them, stay firm in the competition and enhance customer satisfaction through these innovations.

  1. Artificial Intelligence

AI has transformed the insurance industry in a short period. The technology has reduced labour costs and increased the efficiency of claims processing. Some Insurers have started looking at AI-based solutions to retain existing and attract new customers. This can be achieved by offering the best possible services that will delight the customers across channels.

Cognitive computing, along with Artificial Intelligence and neural networks, has started impacting areas across the insurance value chain and, in particular, claims management with help of FNOL (First Notice of Loss). In the case of Motor insurance, the insured or driver informs the insurer of an accident that occurred involving a vehicle. Once the claim is submitted, Chabot will indicate that a claims adjuster will speak with the customer. It can also list nearest authorised auto workshops where the customer can get an estimate before repairing the damaged car. In some cases FNOL is complete in minutes and without the help of a claims adjuster.

According to Ari Libarikian, senior partner at McKinsey & Company “Artificial intelligence will fundamentally disrupt and transform insurance underwriting.” Insurance experts believe that Artificial intelligence will soon deliver more accurate risk assessments, better customer experiences and substantial cost benefits for insurance companies.

  1. Machine Learning & Automation

Insurance technology trends in 2020 will include the overlapping of various technologies with a common objective- improving accuracy. According to Forbes, “Machine learning is technically a branch of AI, but it is more specific … Machine learning is based on the idea that we can build machines to process data and learn on their own, without our constant supervision.”

Machine learning is capable of not only improving claims processing but also automating it. When claim files are in digital form and accessible via the cloud, they can be analysedby using pre-programmed algorithms which result in improving processing speed and accuracy. This automated review can also be used for policy administration and risk assessment.

While automation and machine learning have been in practice in the insurance industry for years, only simple processes that do not require high decision-making skills such as data entry, standard customer communications, and compliancechecks etc used to be within the ambit of automation.

By virtue of the potential of the intelligent systems, the insurance industry hasstarted exploring the automation perspectives of much more complex processes such as property valuation, personalized customer interactions, receiving customer insights, fraud detection and prevention, and claim management – verification, processing and final settlement.

Automated self-services enabled by insurance technologies and the resultant improved customer experience in Insurance claim settlement are becoming a trend in the industry. While taking a self-service approach may sound counter-intuitive, the customer provides video and images at First Notice of Loss (FNOL) and is in control of the claims process.

When a good portion of the minor claims are handled and reviewed autonomously instant pay-outs can easily be achieved and only in a matter of hours the customer can have his claim amount credited to his Bank account.

Of late some insurers have started using unmanned aerial vehicle (UAV)commonly known as a drones for claims assessment of damaged properties.By using a drone, the time spent on gathering the relevant information can be drastically reduced and the assessor does not even have to be on-site, as a drone pilot can be sent in his place.

  1. IoT (Internet of Things)

IoTis a system of interconnected devices, objects, machines, humans or other living being shaving been provided with unique identifiers (UIDs) and the facility to transmit data within the network with no interaction among them. Thus IoT is a giant network of connected objects and people that gather and share data about the setting or environment around them.

These powerful IoT platforms are capable of identifying exactly what information is useful and what can safely be ignored. The collected information can be used to find out patterns, make recommendations, and predict probable perils before they occur.

Most consumers are willing to share more personal information if it means saving money on their insurance policies – and IoT can automate much of that data sharing. Insurers can use data from IoT devices such as the various components of smart homes and wearable technologies to rationalize premium rates, mitigate risk, and even prevent losses.

IoT will bolster other insurance technology with first-hand data, improving the accuracy of risk assessment and giving insureds more power to directly impact their policy pricing.

  1. Telematics

Telematics is a portmanteau of Telecommunications & Informatics. Auto policies will continue to be impacted by telematics capabilities. The Telematics technology initially applied in the Auto insurance business for its ability to track vehicle usage either directly or through a smartphone using a device installed in the vehicles. Following the emergence of Telematics model, adoption of Usage-Based Insurance (UBI) among car and other auto vehicle Insurers switched over from Pay as You Drive Insurance (PAYD) to Pay How You Drive Insurance (PHYD). Now it moved to Control Your Drive Insurance (CYD).

In this kind of auto insurance, the premium rates are charged based on various factors like driving style, habits and nature of the driver. While this new insurance technology rewards the careful and safe drivers, it works as a motivation for the rash drivers to work toward improving their driving pattern. Hence it is very helpful for the safe drivers to buy car insurance at a low premium rate and also it motivates rash drivers to imbibe safe driving practices.

Consumers are embracing technology all aspects of their lives, including their vehicles and driving style. They are increasingly willing to share information with their insurers in order to receive the best services. Some insurers have meticulously planned the insured driver’s customer journey leveraging on the telematics data (see Figure 2).

Telematics is an advanced technology wherein live data of the driver is acquired with the help of Telematics, Radio Frequency (RF) technology, and GPS to determine the judicious cost of insurance. After monitoring multiple parameters such as the distance that the car has covered, the time and period of driving, the road taken while driving, hard braking and cornering, airbag deployment, rapid acceleration etc, the insurance companies determine the premium rate for every single driver. Since it is based on accurate data, it is very beneficial for the insured driver as well as the insurer.

When a car is damaged in a collision with other vehicle or object the telematics box of a car immediately notifies the insurer of the event. The black box records the date, time, and location of the occurrence, and relays it to the insurance company. The insurer treats the information received from the telematics device as its FNOL.

  1. Digital Ride sharing Platforms

Ride sharing which has resulted in fewer people owning cars is transforming the whole landscape for the insurance industry, eroding premium income and (in some cases) size of the market.

Businesses such as Uber and OLA Cabs could have a big and lasting impact on the insurance industry because of the emerging requirements for ride-sharing insurance. At the moment, not too many freelance drivers have ride-share insurance. The findings of a recently conducted study show that only about 20% of them are insured.

Vehicles of rideshare drivers are used both for personal and commercial driving.That makes insuring them in a somewhat of a grey area. This is because personal insurance offers no protection for the driver if he uses his vehicle for business, and a commercial insurance plan is only for vehicles used strictly for business.

  1. Rise of the Autonomous/Semi-Autonomous Vehicles

The advent of Semi-autonomous cars in the present and autonomous cars in the near future, is significantly disrupting the Motor Insurance segment, eroding premium amount and the size of the market.Most of the car manufacturers have started incorporating self-driving systems in their vehicles. In case of an accident in which the human driver was not involved, the fault seems to fall onto the manufacturer.

Quite often many of us ask a question – what does ‘autonomous driving’ really mean? In 2013, the US Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) defined five different levels of autonomous driving. In October 2016, the NHTSA updated their policy to reflect that they have officially adopted the levels of autonomy outlined in the SAE International’s J3016 document.

The “Level 5” of automation is likely to come after some years when the whole ecosystem will be very congenial for autonomous cars and zero human intervention will be required.

In cases where the self-driving system of the insured car was the reason for the crash, companies like Google, Volvo and Mercedes-Benz have already accepted liability. Meanwhile, with great confidence in their product, Tesla extends an insurance plan to all owners of their newer vehicles.

When a car collides with another vehicle, the telematics box of a car immediately apprises the insurer of the event. The box integrates GPS technology and records the time, date, and location of the incident, and instantly transmits it to the insurance company. The insurer treats the information received from the telematics device as its FNOL. In such a way, the adjuster is self-assured that the information received is accurate and consistent with the description of the event.

The whole process of systematizing insurance for self-driving is going to take some time. The experts have to find out a way of detecting whether the fault lies with the driver or with the self-driving systems itself.

  1. Blockchain Insurance Technology

Blockchain technology is indicated as one of the biggest icons of the Industy4.0 and one of the main disruptors for many industries, including insurance. Block chain is like a comprehensive sales ledger which is always up-to-date with the record of who is holding what or who has transferred what and to whom. This sales ledger is a secure decentralised database that is always accessible in the public domain.

Once the insurers follow this technology, potential fraudsters will find it almost impossible to forge or alter documents or transactions sequestered behind the digitally reinforced Blockchain wall. If the insurance industry is resolute to standardize transactions with block chain, the system will swiftly expose scams and lock them out of the system early in the transaction chain. False claims involving forged medical bills from staged crashes will decrease sharply. One-off claims such as an uninsured driver faking the date of a crash will be exposed and will not be able to defraud the insurer.

The future of blockchain as a game-changer for insurance may not be assured at this early stage, however, the insurers who adopt blockchain in the right earnest will certainly have a significant advantage over those competitors who do not. This will include substantial savings from better fraud prevention and detection.

  1. Predictive Analysis

Predictive analytics is the practice of collecting information from existing data sets to determine patterns and predict future trends. Predictive analytics does not conjecture what will happen in the future. It only predicts what might happen in the future with afair level of authenticity.

By using Predictive analytics tools, Insurers can collect data from a variety of sources – both internal and external – to understand and predict the behaviour of insureds. P&C Insurers are collecting data from interactions with intermediaries, customer interactions, social media,Smart Homes and Health Telematics for better claim management and underwriting.

  1. Use of chatbots for improved customer service

As a majority of insurance-related queries are related to similar topics like the price, duration and terms of various insurance plans, chatbots can answer them much faster and more efficiently than human representatives can do. The advantages of chatbots are not just for the insurance companies themselves but for the customers too. According to the ‘2018 State of Chatbots Report’, 69% of consumers prefer interacting with chatbots over human customer service representatives.

Supported by AI, chatbots have turned into very smart and intelligent and have ushered in new standards in efficiency and customer satisfaction for the insurance industry. These chatbots can redirect Chats to a human representative where the robots are unable to answer complex questions.

Conclusion:

As the newly emerging disruptive technologies challenge the traditional ways of operations, the insurance industry needs to embrace the same sooner than later. The insurance sector can only improve efficiency & accuracy, accelerate decision making,optimize productivity, lower costs, reduce frauds, enhance the customer experience by adopting smarter technologies such as artificial intelligence, machine learning, IoT, blockchain, data analytics etc. The organizations who fail to adopt smarter solutions well in time will eventually lose to new market entrants. With all of the technological innovations and trends which have been emerging in recent times, 2020 will be a very interesting year to watch for the insurance sector.

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