Receiving a message by mobile phone. Photo credit: Trung Vo Chi, 2015 CGAP Photo Contest.
The insurance industry is undergoing a revolution, and just like in many other sectors, it is driven by technology. Building on the growing popularity of FinTech (financial technology), we now have InsureTech (or InsurTech) - the newest term used to describe the blending of insurance and technology. Popular events such as InsureTech Connect and InsurTech Conference: “Reimagining Insurance” show how quickly this term – and revolution – is catching on.
This blog highlights five areas of InsureTech innovation and explores what they mean for microinsurance.
1. Artificial Intelligence (AI) and Machine Learning
Advances in AI and machine learning are making it possible to leverage new and unstructured sets of data. For example, Zhong An, the first online-only insurer in China, is using machine learning to customize pricing on products for online retailers—leveraging a consumer’s purchase history to gauge individual risk around returns and warranties.
With fewer available data sources—like credit histories, online usage, and even national ID systems—developing markets need to be ever more creative in identifying and leveraging unique datasets. New types of data, such as mobile phone usage and social media are already being used to extend credit offerings to previously excluded consumers.
Significant potential also exists across the microinsurance value chain, where AI could help improve risk modelling, pricing, collection frequencies, customer acquisition, distribution and more. For example, behavioral data through call records and social media can be used to identify indicators of consumer propensity to take up insurance and continue paying premiums, as well as optimize distribution channels and marketing strategies. AI can also be used to improve claims processing, as we have seen with US InsureTech company Lemonade’s recent announcement of a claim that was handled and paid in three seconds solely through AI – from triage, through fraud mitigation, to payment via wire.
Closely related to AI and machine learning are chatbots. When considering distribution of microinsurance products, there is often a struggle between low-touch approaches like USSD (Unstructured Supplementary Service Data, a mobile communication technology used to send text between a mobile phone and an application program in the network)which can be key for maintaining viability of low-premium products, and high-touch approaches like agents, which are often vital to establish consumer understanding and trust. Chatbots provide an interesting opportunity somewhere between these models.
A number of insurance players, like Spixii, along with other industries are already using chatbots to improve customer experience. When looking at the typical microinsurance customer, however, one must consider a number of aspects to gauge the potential of chatbots, such as literacy rates, smartphone penetration, target market age, and culture.
3. Peer-to-Peer (P2P)
P2P is generally used to describe products like rotating savings and credit associations that group individuals into pools. P2P is not necessarily a new concept in emerging markets; however, technologies like social media and smartphones have the ability to create new group structures that can make transactions more transparent, improve payment security, and provide new ways to connect to peers.
Players like Friendsurance and So-Sure that leverage these technologies say their customers are seeing upwards of 33-80% savings over traditional products, created by groups’ shared incentives to minimize fraudulent claims. Friendsurance offers policy holders with the same type of insurance the opportunity to form groups - a portion of their premiums go into a cashback pool which is returned to the policy holders at the end of the year if no claims are made. So-Sure is a UK provider with a similar offering, but is specific to phone insurance.
4. On-Demand Protection
Emerging consumers prefer to purchase items frequently in small quantities as opposed to less frequently in bulk due to irregular income streams and competing needs. This has led to offerings in "sachet" sizes, or the trend of sachet marketing. In microinsurance for example, products offering short-term policies are often payable in daily, weekly, or monthly amounts.
These preferences could translate into “on-demand” insurance that is turned on or off depending on consumer need. Short-term accidental insurance like Safari Bima or Cover2Go have already been tried where individuals purchase scratch cards or send an SMS to activate coverage. As smartphone penetration increases in emerging markets, additional opportunities may be unlocked for similar protection of houses, livestock, and other assets for low-income consumers.
5. Internet of Things (IoT)
IoT devices, from wearables like FitBit (a company specializing in fitness tracking apps and wearables) to vehicle telematics devices (vehicle systems that facilitate and enhance navigation, safety and communication features), have quickly become a regular part of many people’s daily routines. IoT has one of the clearest and most impactful roles to play in insurance for years ahead. Insurers are leveraging IoT devices to harvest data, reduce risk, customize communication with customers, and improve customers’ overall experience.
With respect to emerging consumers, a number of examples have already come into play like networked smoke detectors for informal settlements (Lumkani), radio-frequency identification (RFID) chips to track livestock for insurance (IFFCO-Tokio), and weather stations that facilitate crop insurance for smallholder farmers (ACRE).
These trends are only the tip of the iceberg of what’s happening in InsureTech, yet they provide a glimpse into the future of microinsurance. It is a future where technology is fully leveraged to enable new types of products that meet consumer needs, to deliver improved customer experience, and ultimately to include and protect more emerging consumers.
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