How FinTech is Transforming The Insurance Industry
Despite the financial service industry’s complicated environment, there is a wealth of opportunity to improve customer experience within the FinTech space. From signups to underwriting, the traditional FinServe (Financial Service) industry has a great deal of room for improvements.
FinTech has been around for about 5 years now and insurers have learned a lot in that time about how to successfully break into the new digital landscape. Banks have paved the way for insurers to leverage all that FinTech has to offer. This transition to digital services has hit us hard and is moving faster than originally anticipated, gaining significant momentum and disrupting what insurers once knew. We provide a brief introduction to entering the FinTech environment along with the challenges and opportunities it presents.
Customers are Demanding InsurTech
Mobile devices have become a core element of our everyday lifestyle and have evoked a great deal of disruption in every area of business, including the financial service industry. Customer demands have significantly shifted as the digital revolution is transforming the way we access financial products and services.
While some FinServes are taking advantage of wearable technology, others are investing in attracting uninsured millennials through mobile applications. According to KPMG’s Q2 2016 report, there has also been an increase in insurance companies working with FinTechs on all manner of proof-of-concept initiatives. FinServes are now beginning to leverage new technologies with the goal of enhancing their customer experience. In doing so, they are creating new underwriting, claims, distribution, brokerage platforms, and integrating automation.
Changing Customer Expectations
As customers are expecting more from digital experiences offered by companies such as Google, Amazon, Facebook, and Apple, they are expecting the same level of customer experience from their financial service providers as well. FinTech is disrupting the traditional financial services industry, providing innovative solutions for convenience, accessibility, and tailored products.
Enhancing the Customer Experience
FinServe companies are now shifting their operations to mobile delivery in order to reach, engage, and retain customers. Significant growth in customers using mobile applications is expected by 2020, noted in PwC’s recent FinTech Survey. Within the 432 respondents surveyed, 75% think the most important impact FinTech will have is increased focus on the customer.
A shocking 84% of respondents expect the largest growth in usage in the next 5 years to be in mobile applications. Insurance companies have a wealth of digital opportunity to leverage in order to adapt to changing customer behaviors.
How to Best Respond to FinTech
There are a number of different strategies you can adopt to prepare for the quickly evolving InsurTech environment:
Be Open to Change: Engage with technology solutions which will help insurers generate new ideas, change their organizational culture, and identify areas for growth in the future. If you want to remain in the competitive market, you’ll need to adapt to change.
Collaborate: Reach beyond the FinServe industry to find partners that have experience and different perspectives to identify new ways to generate value.
Invest in Tech: Employ venture investing to implement innovative technology that is far beyond your competition’s.
Plan for Success: With insurance being one of the most complex industries to disrupt, its important to analyze your goals for the future. Consider opportunities to improve business models by investing in digital technologies that are easily implemented.
What to Expect for InsurTech
While there are a few challenges companies face when entering the FinTech environment, there are a myriad of benefits:
1. Greater Customer Engagement: FinTech presents many solutions for financial service companies to become much more effective in every step of the customer journey, such as offering convenience through mobile, for example.
2. Challenge Traditional Business Models: FinTech is disrupting traditional business models and inspiring new solutions, in turn, adding more value for customers.
3. Improved Retention of Customers: With a greater focus on customer needs, insurers can better target users’ pain points and provide solutions to different market segments.
4. Innovative Solutions: Several FinTechs are offering innovative solutions that combine IT with current business demands to maximize speed, flexibility, and cost efficiency.
2015 was just the beginning for InsurTech with great potential in the near future. While the opportunities it brings offer many benefits, entering the FinTech landscape also presents new challenges for FinServes. We have identified a few key challenges that insurance companies currently face:
1. Customer Journey: Customers still experience a lot of friction throughout the customer journey. Rising consumer expectations are more and more difficult to meet.
2. IT Security: 54% of respondents in PwC’s FinTech Survey think IT is the biggest barrier to entering the FinTech environment.
3. Differing Business Models: The traditional insurance industry has stayed the same for over a century, stuck in its time and failing to meet users’ rapidly changing needs. Shifting business models may prove to be a challenge with FinTech adoption.
In many ways, blockchain technology has significant potential to become a core feature of insurance operations. The technology can manage a diverse range of processing models and easily transform service efficiency.
What is Blockchain?
Blockchain, or distributed registry technology, is a digital ledger that stores active transaction data without intermediate control by using a consensus system to validate transactions. Blockchain operates on a principle of transparency for fixed record keeping.
The possibilities to use this technology in insurance are abundant. In its basic application, blockchain can be used to improve fraud detection, claims processing and IoT product development.
Blockchain can introduce an assurance standard across a number of suspicious contingents. The decentralized nature of blockchain technology allows for the autonomous justification of people, policies, and exchanges. Incorporating blockchain into existing insurance procedures can allow for improved detection of fraudulent behavior such as identity theft, misrepresented injury or damage claims, and more. A blockchain system can help insurers:
- Confirm customer authenticity
- Validate ownership
- Attest to the origin of property and documents like medical reports
- Monitor claims history
- Recognize identity-specific patterns of fraudulent behavior
- Timestamp policy purchases
Improved validation processes can add significant value to insurance operations by eliminating errors and enhancing early detection of fraudulent transactions.
Another area for improvement lies in enhancing claims management with blockchain. Streamlining existing tariff systems with blockchain technology can improve customer satisfaction with greater transparency, proficiency, and impartiality in all areas of claims processing. Blockchain is a key component in creating a client-centric claims model.
Implementing blockchain into a data system alongside mobile applications, as well as satellite information and sensor data can improve efficiency throughout the claims processing funnel. If insurers can be informed of a car accident instantaneously, they can begin the claims procedure right away, while simultaneously involving selected third-party assistance like towing companies and auto-body services. Blockchain quickly connects and organizes a network of data to improve the efficiency of an interconnected procedure.
Blockchain facilitates exceptionally regulated data sharing to speed up the claims process and ensure fairness for everyone involved.
IoT Product Development
Now that so many devices are directly linked to the IoT, insurers can access massive amounts of valuable data to develop innovative products and service applications. A blockchain management system can monitor this elaborate network of devices independently.
With usage-based auto insurance, blockchain can leverage devices to collect data about drive times, mileage, safe driving behavior to identify dangerous drivers. This technology allows customers to have more authority over their insurance rates.
Again, blockchain works towards creating a customer-focused insurance industry and allows insurers to improve customer retention and satisfaction.
How FinTech is Shaping Financial Services
PwC estimates within the next 3-5 years, cumulative investment in FinTech globally could well exceed $150 billion. Venture capital funding for FinTech has already rapidly expanded within the last year. According to KPMG and CB Insights, a total of $5.7 billion was invested in FinTech in the first quarter of 2016 alone. More than $50 billion has been invested in almost 2500 companies since 2010 as these innovators redefine the way in which we store, save, borrow, invest, move, spend and protect money.
Insurance companies need to recognize FinTech’s potential and adapt and evolve or risk losing market share. Ideally, they should have short, medium, and long-term goals, keeping customer centricity top-of-mind. Without quick action, over 20% of financial service businesses are at risk of losing market share to FinTechs. With careful consideration, this new digital landscape should be entered with a sense of urgency – before your competitors get too far ahead.
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