Most insurance companies are 5–10 years behind current technological trends and show signs of growing technical debt. Instead of using fragmented legacy systems, it would be more economical in every way to develop new, comprehensive solutions. This means that implementing modern technology is one of the fastest ways to create a competitive advantage in the sector. What are the future trends in the field? What should insurance companies do today? And how will artificial intelligence affect all of this? Hannu Kikkas, the Head of Business Development at Concise, talks about the obstacles, opportunities, and threats of insurtech.
What is insurTech?
Insurtech (insurance technology) refers to innovative technology solutions in the insurance sector that aim to improve processes, increase efficiency, and create new business models. Insurtech is not just about developing technology but it can also fundamentally change business models and customer experiences. This helps insurance companies adapt to changing expectations and stay competitive.
Insurance companies are 5–10 years behind today’s technology
When a customer goes to an insurance company’s website and wants to get, for example, third-party liability insurance to their vehicle, they can see their monthly or annual premium in a few clicks. What they don’t see, however, is the complex database and internal system that calculates this number for them. The insurance company’s system system holds records of all the cases related to that customer, previous offers, and other information. This information is used to perform a risk analysis using complex formulas which in turn help to calculate the potential financial damage and the corresponding payment to mitigate the risks.
However, these systems are often complex where complexity does not benefit anything – quite the opposite – and offer little flexibility and options where where the system could provide provide more added value. The problems are divided into 3 main groups:
- Technically outdated solutions – insurance companies often have an in-house dedicated development team, but this team is mainly occupied with maintaining the existing platform, not developing or modernizing. Often, these platforms are technically about 5–10 years compared to the industry standard for technical startups. This means that legacy systems use solutions that are sometimes so outdated that it is no longer possible to fully integrate them with other systems and to exchange information. And the growing risk of cyber attacks that comes with an outdated platform is an added bonus.
- Performance bottlenecks of the platforms – solutions developed over such a long period of time tend to be fragmented, slow, and not very user-friendly. It also takes a very long time to fix bugs. Usually insurance companies try compensate for the slowness by increasing the expenditure on hardware and servers. However this is a short term solution as it does not solve the root cause and over time additional investements are needed.
- Data fragmentation and migration – recently the trend for the insurance companies has been that larger insurance corporations buy up smaller, usually local, insurance companies. Usually, both insurance companies have their own data platform, but somehow, this data should be brought together on one platform.
Flexibility and personalization are the future
Hannu sees that insurance companies could significantly reduce the burden on their and all other systems if they drastically modernized their legacy systems. This would also provide an opportunity to come up with new and innovative insurance products faster.
“One future trend is definitely short-term insurance. For example, regarding vehicle third party liability insurance, driving Bolt or Uber is like driving a taxi – with a much higher risk. But maybe you only want to drive a Bolt for a week. In that case, you should take out some short-term insurance. This problem is being solved by an Estonian startup, Cachet. Similarly, maybe you only want life insurance for the time you go skiing in the mountains to mitigate the risk during the period of increased risk,” Hannu describes.
The solutions could also be much more personalized. For example, taking health behavior into account in life insurance – an already growing trend in the USA. In Estonia, Lyfery is the first to develop such a model.
Data is the foundation to innovation
Although insurance companies all have a large database, this data is still fragmented between insurance companies. “The simplest example is casco insurance – if you have a car accident now, the insurance will cover it, and your premium will increase. But if you go to the next insurance provider, they will not know anything about your previous insurance claims. Once the companies start sharing this information with each other, the sector will automatically also become fairer for customers,,” Hannu explains.
Hannu says that a shared data lake or hub would enable better data processing and provide the ground for great innovation. Companies that can replace outdated legacy systems and put data to work for them will gain a significant competitive advantage. The question is no longer whether technology will change the insurance market but how quickly companies are ready to adopt it and reap the benefit.
Do you need help with system upgrades or data migration? We can help. Get in touch, and let’s talk. hello@concise.eu
