The global insurance industry is undergoing a significant transformation as it shifts to ‘digital-first’ business models, unlocking new value potentially worth billions of dollars. This shift is driven by the increasing emphasis on personalized premiums and usage-based insurance coverage. Insurers are leveraging the power of the Internet of Things (IoT), advanced analytics, and machine learning to develop highly granular individual risk profiles. Collaboration between traditional insurance providers and InsurTech firms is paving the way for innovative models, new revenue streams, higher profitability, and reduced operational costs.
The $5 trillion global insurance market is currently experiencing a monumental course correction that will redefine what is considered 'business as usual.' A ‘digital-first’ approach is rapidly gaining traction across the insurance landscape, propelled by a new generation of consumers, data proliferation, automation, and advancements in Artificial Intelligence (AI).
Let’s explore the top trends shaping the insurance industry and how digital technologies are driving irreversible changes.
1. New Insurance Models and Personalized Products The digital economy is set to make usage-based, on-demand, and 'all-in-one' insurance lifestyle products more relevant than ever. Customers increasingly prefer personalized insurance coverage tailored to their specific needs, as opposed to the one-size-fits-all insurance products currently dominating the market.
Currently, more than 80% of insurance premiums collected are lost to distribution costs. Digital models are poised to disrupt this by rendering intermediaries—often characterized by their excessive reliance on human effort—obsolete. Flexible coverage options, micro insurance, and peer-to-peer insurance will become increasingly viable in the long run. Reinsurers will begin providing risk capital directly to digital insurance brands, while regulatory frameworks will evolve to support shorter, more efficient value chains.
Lifestyle apps are set to revolutionize insurer-insured relationships, with APIs enabling the integration of data from multiple sources to create insights-driven insurance offerings. This deeper understanding of customer behavior will lead to more accurate risk assessments, personalized premiums, and sustained value creation, resulting in enhanced customer experiences, increased brand loyalty, and a reduction in false claims.
2. AI & Automation for Faster Insurance Claims Robotic Process Automation (RPA) and AI are rapidly becoming central to the insurance industry, driven by new data channels, improved data processing capabilities, and advancements in AI algorithms. For instance, InsurTech company Lemonade has built its business model around AI and behavioral economics. AI eliminates the need for brokers and paperwork, while behavioral economics minimizes fraud, reducing time, effort, and costs.
Another InsurTech firm, Tyche, has successfully implemented an AI-driven claim likelihood model in underwriting, enabling it to accurately assess risks and achieve higher profitability.
Bots are becoming mainstream in both the front and back offices of insurance companies, automating policy servicing and claims management to deliver faster, more personalized customer service. For example, a leading U.S. auto insurer’s virtual assistant responds to customer queries regarding policies and payments, while Lemonade’s claims bot Jim processes and pays out property claims in just three seconds. Similarly, the automated insurance agent SPIXII interacts with customers via a mobile app and other messaging platforms to assist in purchasing the right insurance policies.
AI and automation are poised to profoundly impact and enhance business outcomes in customer experience, cost optimization, operational efficiencies, market competitiveness, and the development of new business models within the insurance industry.
3. Advanced Analytics & Proactive Insurance Solutions Premiums will become increasingly personalized, thanks to new sources of tech-enabled data such as IoT devices, mobile-enabled InsurTech apps, and wearables. With the connected devices market expected to grow substantially over the next five years, Property and Casualty (P&C) insurers will be able to access real-time, accurate data on individual consumers' loss exposure. This will enable them to respond proactively with timely, highly personalized interventions.
A partnership between a Europe-based insurance company and Panasonic is a prime example. Panasonic's sensors send mobile alerts to both the insurer and its customers, enabling quick and informed mitigation of potential issues.
Drone and imaging technology will increasingly be used by insurers to capture high-definition images for remote, accurate property assessments and analysis. Several leading U.S. auto insurers utilized drones to assess the damage caused by Hurricane Harvey, while an Australian insurance company managed to settle 90% of large loss claims within 90 days using drones.
Furthermore, advanced analytics will be used to uncover deeper relationships within data sets, allowing for more granular individual risk profiles and better protection against emerging risk exposures. For example, a U.K.-based insurance company uses predictive analytics to model complex customer behaviors, achieve enhanced pricing accuracy, and significantly reduce decision time. A U.S. insurer has deployed a telematics device to provide drivers with real-time feedback, encouraging safer driving habits, which has helped customers save up to 40% on insurance premiums.
Advanced analytics will also be employed to dynamically segment users and their needs, model behaviors, identify exceptions, adjust policy prices, optimize business strategies, and discover new growth opportunities. The insurance industry can scale these efforts further by integrating automation, AI, and machine learning, transforming insurers into active risk managers.
4. InsurTech Partnerships InsurTech firms have demonstrated significant growth in the areas of auto, home ownership, and cyber insurance. This growth will likely spur traditional insurers to either acquire technological capabilities or partner with InsurTech companies. With increasing demand for innovative insurance products and services from millennials, such collaborations will become a critical imperative.
These partnerships will create a win-win situation—traditional insurers will benefit from faster adoption of a tech-savvy culture, while InsurTech companies will gain access to larger customer bases, funding, and domain expertise. This collaboration will lead to the emergence of new insurance models and revenue streams, enhanced profitability, and reduced operational costs. Ultimately, customer experiences will be elevated through value-added offerings.
5. Mainstreaming Blockchain in Insurance The insurance industry’s need to process vast volumes of customer data in real time across various functions necessitates the secure and efficient transfer of data among organizations and their diverse stakeholders.
Blockchain technology offers a solution by enabling secure data management across multiple interfaces without compromising integrity. From identity management and underwriting to claims processing, fraud management, and reliable data availability, blockchain technology can reduce operational costs while ensuring data security. Decentralized Autonomous Organizations (DAOs) and smart contracts are additional benefits that blockchain can offer in policy management.
More than 38 insurance and reinsurance companies have already embarked on an initiative called B3i to explore blockchain applications in insurance. A beta version of a blockchain-based insurance solution is expected to be deployed soon.
These trends indicate that the insurance industry stands on the brink of creating billions of dollars in new value. The key to unlocking this potential lies in understanding how and when to leverage existing and emerging technologies.
