Regulators must adapt as technology changes the insurance landscape

Companies are using insurance technology, or insurtech, to prevent fraud, process claims promptly, and offer personalised services to customers

Insurance is changing as companies use artificial intelligence (AI), Internet of Things (IoT), and blockchain. With the emergence of such technological innovations in the insurance value chain, regulators have to manage new questions and challenges.

Over the years, consumer needs have evolved rapidly. Distribution channels have become digitalised and IoT, a network of interrelated devices that connect and exchange data, is shaping how risk is underwritten. The insurance industry is being increasingly disrupted in its traditional models in these ways: 

AI: It enhances decision-making and personalises customer interactions. For instance, AI-powered chatbots provide instant customer support and expedite claims processing. Machine-learning algorithms analyse vast datasets to assess patterns of risks more accurately, allowing insurers to offer more personalised products to different sets of customers. 

IoT: Devices collect real-time data that insurers use to continuously monitor risk factors. The data enables the development of insurance models that tailor premiums based on actual usage patterns, promoting safer behaviour among policyholders. We might soon see a practical use case of IoT to track seatbelt utilisation in vehicles, enabling insurers to measure whether a journey was safe. Accordingly, they could introduce dynamic premiums: Policies being more expensive for rash drivers and the other way. 

Blockchain: It’s a digitally distributed, decentralised, public ledger that exists across a network, according to one definition. Blockchain is best known for its role in cryptocurrency systems. The technology enhances transparency and efficiency in insurance transactions. A blockchain allows insurers to make contracts which are essentially self-executing with terms directly written into code and claims paid out based upon a trigger event. 

Companies are finding the best use of insurance technology, or insurtech, is in limiting fraud and processing claims promptly. Insurtech is assisting insurers by identifying suspicious data and deviations from established patterns, triggering alerts. An example of this is AI tools studying data on rain before processing insurance claims for drought. Such proactive analysis reduces the probability of fraudulent claims being processed and it allows claim handlers to focus on delivering satisfactory customer service. 

Insurers are increasingly relying on technology to automate claims. Traditionally, one of the biggest concerns raised by insurance customers is delays in finalising claims. Insurers have therefore adopted AI-powered chatbots and virtual assistants to improve customer experience by providing quick support for claims. In fact, in some cases, insurers prefer using AI models for handling customer claims altogether, as that option is quick, light on jargon and improves customer satisfaction. 

Companies are expected to increasingly rely on insurtech, considering the benefits it provides in filtering fraudulent claims, developing better products and assisting customers. However, the rise of insurtech is also likely to present numerous challenges in terms of protection of consumer data. While regulatory action to protect policyholders’ interests will be appropriate in this background, at the same time it is important that regulators do not stifle innovation. 

The adoption of AI, IoT, and blockchain, will lead to more efficient operations and enhanced customer satisfaction. Traditional insurers who embrace emerging technologies and collaborate with insurtech startups will be better positioned to thrive in this landscape. Embracing technological advancements is no longer optional for traditional insurers: It is imperative for staying relevant and competitive. What is also imperative is that regulators understand technology and allow insurance companies to embrace development while striking the right balance between maintaining policyholder protection and promoting innovation. 

The writer is Partner, Shardul Amarchand Mangaldas & Co. The column was edited for space