InsurTechs and Smart Contracts – A look into the future of the insurance industry

Boring and old-fashioned was yesterday - thanks to state-of-the-art digital technologies, insurance companies have long since arrived in the future. These changes are mainly driven by the demands of new target groups. Young customers today expect competent consulting, fast problem solving, and a simple implementation of all insurance matters – and all that online if possible. Every year, millions of US dollars are invested in new technologies for the insurance industry to make offers even more customer-friendly and efficient.

What are InsurTechs anyway?  

The term InsurTech is composed of the English words Insurance and Technology. These are therefore insurance services that use digital technologies. Even though the first providers in this area entered the market more than ten years ago, the industry is still in its early stages. More than two-thirds of InsurTechs are still in the start-up phase - but are already providing a breath of fresh air in the insurance industry.

Some start-ups offer their own insurance policies online, which mostly insure short-term and situational risks such as missing a flight, rental car coverage or a mountain bike tour. Other InsurTechs provide new technologies to established insurance companies. The problem is: many start-ups simply lack the insurance know-how or start-up capital to successfully establish themselves. The large insurance companies have recognised the potential of digitalisation and are increasingly working with start-ups or financially supporting the InsurTech sector.

Artificial intelligence is on the rise

A machine that checks new insurance applications? This is no longer a dream of the future: many new technologies already use artificial intelligence (AI) to facilitate work processes. For example, risks can be automatically checked and assessed in order to make an insurance offer to people with pre-existing conditions - this was not possible in the past. The AI is constantly learning: The more data is collected and processed, the better and more efficiently the AI works.

Many back-office tasks can already be fully automated. Bots can answer simple questions and thus enable 24/7 customer service, set up appointments automatically and even handle minor contract changes. In the health sector, smartphone data can be used to calculate insurance rates based on physical activity. And after a damage claim, the AI can itself check the images uploaded by the insured person itself and determine the claim amount. In the future, it should even be possible to process simple damages, such as broken glass on a vehicle, completely automatically!

Especially interesting for insurances: Smart Contracts  

So-called smart contracts make it even easier to take out an insurance policy and payments in case of damages. Here, the advantages of a decentralised data structure, the so-called blockchain, can be used. The blockchain is a kind of openly visible list of data records in which all processes and data are collected and stored decentrally, i.e. on many different computers. In contrast to storage on a single computer, this makes the information transparent and forgery-proof. Why? Because, instead of hacking one single server, one now would have to hack each individual computer in the blockchain to falsify the information.

The Blockchain Insurance Industry Initiative (B3i), in which many large insurers have joined forces, is researching possible use cases for blockchain in the insurance sector. The goal is to maximise customer benefits and further simplify processes. One area where smart contracts and blockchain technologies are already being applied is the analysis of weather data. This enables farmers to insure themselves against a harvest loss, for example. Sensors on the fields measure precipitation volumes in a certain period and send the data to the blockchain. If it does not rain for several months, the data shows this beyond a doubt and the insurance pays the farmer for the damages without him having to report it. This also saves the cost for expert opinions and court dates. Other areas of application could be for hail or water damage or increased transportation costs on rainy days.

From a technical point of view, smart contracts are easy to implement. However, they are still offered only very rarely. Another practical example is the blockchain insurance for late flights: The insurance policy is connected with a world-wide air traffic data base per blockchain. If the flight is more than two hours late, the passenger does not have to contact the airline or an online consumer portal. He is compensated completely automatically and without having to report the damage.

Despite digitalisation – personal consultation is a must

No doubt, digital insurance technologies are conquering the entire industry. Classic insurance products are expanded by digital components and completely new products arise at the same time. Not only established companies and start-ups profit from this, but especially customers: insurance is becoming increasingly simple and customer-friendly.

But before taking out a policy, there is still the consultation - and despite all the digital technologies and online portals, this is far from obsolete. Surveys show that a personal consultation is still the most important factor for the majority of policyholders when it comes to insurance and finance. After all, a machine can neither replace the personality nor the individuality of a financial consultation. Only an advisor goes through all the important points step by step, listens and advises according to the individual needs and wishes - from person to person.