Finance Business Fintech

Fintech Developments in the Insurance Industry

In recent years fintech innovations and technologies have reshaped the provision of financial services and it continues to do so. It has created new opportunities as well as posed new challenges for the insurance industry. Since the emergence of fintech the insurance industry is undergoing a systematic change in its business operations. Fintech developments in the insurance sector have impacted the insurance sector greatly. The surge of fintech diversity in customer behaviors and advanced technologies has impacted the insurance industry. It is essential to be pointed out that Insurance (Insur-tech) and other technology start-ups work continuously to redefine and upgrade the customer experience.

What is Fintech?

Fintech is a combination of two words- “Financial and Technology”. It applies to any emerging technology that provides the customers or financial institutions to deliver financial services in a new and faster way compared to the traditional model.

Fintech is beneficial in a way that it allows a person to make quick lending decision, allows the investor to do research, choose stocks and check their portfolio performance in real-time. Fintech developments have caused a massive change in the way companies do business.  

What are the emerging fintech developments in the insurance sector?

Fintech development pertains to the different emerging technologies and business models that have played a vital role in the transformation of the insurance sector and it is still transforming.

These developments in the insurance sector are specified below.

• Emerging technologies that include digital platforms, big data, data analytics, machine learning, Artificial Intelligence (AI), etc.
• Business models include Peer to Peer Lending (P2P), usage-based, and on-demand insurance.

The innovations in the insurance industries can be attributed to technological growth and the evolving expectations of the customers. The creators of these innovations are incumbent insurance companies and new technology firms or companies called insur-tech.

How do Fintech developments impact insurance businesses?

The innovations in fintech has the potential to cause significant benefits such as-

• Efficiency improvements;
• Costs reductions;
• Improvement in Assessment of risk;
• Great customer experience;
• Huge financial inclusion.

It must be noted that the innovations may also have a negative effect on consumers and may affect the financial stability of the insurance markets.

Hence in order to identify the impact of these innovations in fintech, the IAIS (International Association of Insurance supervisors^[1]) reviewed the following potential scenarios that can disrupt the insurance business models.

• Incumbent insurers maintain their customer relationship successfully and leverage technology firms to their advantage.
• The value chain of insurance becomes fragmented due to the new tech players enter the market thus weakening the traditional customer relationship.
• Incumbent and traditional insurers are overtaken completely by big tech companies.

These above-mentioned scenarios were analyzed and the main findings from it are specified in brief below.

• Competitiveness may decrease in the long term because the fintech developments would create a competitive advantage for technology firms and the insurers who have difficulty in adapting to the new technological environment may suffer from pressure on profit margins.
• Comparability may decrease, however the extent differs from one scenario to the other. It may decrease due to the increase in the customization of products.
• Interconnectedness is expected to increase specifically owing to the limited number of tech platforms that support big data storage and processing.
• Regulatory oversight may decrease specifically due to the increase in the number of unregulated players providing technological services in the different areas of the insurance value chain.
• There may be an increase in the conduct of businesses risk owing to the disproportionately increased focus on the forms objectives instead of consumers mainly through a provision of bespoke products with less insurance coverage.
• Data ownership may be subjected to increased risk of unauthorized access and use or transfer of personal data.
• Business model viability may also decrease assuming that the efficacy of insurers back-office processes and systems help the insurers to work with less premiums on a large scale. Such less premiums may endanger the sustainability of the business models initially until there is an accommodation between risk and financial return.

How Fintech developments are making insurance more affordable?

The fintech industry is growing day by day and the growth is sustainable. In the operations of large scale sectors insurance businesses have been caught lingering in meeting the capabilities for the sets of people but the fintech has been assisting the insurance industry in this. It is assisting in making a strong insurance industry that has the capacity to innovate and operate with sustainability. 

What are the benefits for insurers by partnering with Insur-tech enterprises?

By partnering with Insur-tech enterprises, the insurers can offer the following:

• Enriched Connectivity: Artificial Intelligence solutions may avoid friction at many points in a customer journey.
• Personalized product offerings: Artificial Intelligence for Insurtech can help and offer targeted products to the customers.
• End to End automation: Customers are willing to leave manual processing claims behind. 

Conclusion

Fintech developments can be disruptive and can have a critical impact on the insurance market but it is a very uncertain area now to assess and analyze the extent to which these developments or innovations would affect the insurance market and its supervision.

Also, read: Steps Taken by RBI to Develop Fintech