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Insurance Modernization Fueled by Rise of Insurtechs

The recent rise of insurtechs has spurred modernization in the fundamentals of insurance, including policy creation, underwriting, and claims management. Insurtechs, such as Hippo and Lemonade, have implemented AI and data analytics to provide quick and accurate quotes to their customers while also decreasing their own operating costs.

Such innovation has disrupted the traditional insurance industry and has helped alter underlying business models of legacy companies, forcing them to invest heavily in insurtech technology to remain competitive. Hippo, which promotes savings of up to 25% on home insurance, offers customer quotes in less than 60 seconds and also provides complimentary smart home sensor kits to all policyholders. These kits include a two-sensor smart home monitoring system and premium discounts for helping to prevent common risks from fire, water damage, and break-ins.

Meanwhile, complicated processes, slow response times, and a lack of transparency have negatively impacted many legacy players. Companies like Hippo are winning those frustrated customers by simplifying these processes with AI at the forefront of those efforts. AI has the potential to not only ease the quoting process, but also expedite claims for customers while freeing up additional time for claims adjusters to take on more complicated customer issues. Insurance giant Farmers has already conducted tests to see how machine learning and software robots can eliminate much of the routine, mundane work for its more than 10,000 claims employees.

The implementation of such technologies will emphasize the need for more accurate property information and localized risk assessment. Companies will require accurate data sources to prefill the information in a policy application, particularly given homeowners’ lack of accurate knowledge of their own property, as well as dynamic risks that are better understood with real-time data. In the push to AI, companies with the best data sources and algorithms will win in risk assessment, pricing, and claims. New data sources can include drone imagery of roof condition, history of remodeling, or risk-related data such as the location of trees on the insured property or wildfire conditions.

As AI and machine learning inevitably proliferate throughout the industry, customers will come to expect quick and easy quotes. Compared to traditional models that require more than 120 questions, these new models will become table stakes as customer awareness increases. Companies that fail to modernize in this regard will likely lose potential customers, as deal shoppers become frustrated with the long process.

While new startups like Hippo and Lemonade are modernizing key areas of the industry, such as policy language, coverages, and pricing, legacy players largely continue to rely on traditional models for success. These lagging companies will ultimately be forced to adapt once a few larger players join the mix. As companies like USAA and Travelers lead the way for change, expect others to quickly follow suit, imitating common success stories.

For a more detailed assessment of the insurance industry and various players’ approach to leveraging smart home technology, check out the Parks Associates whitepaper Leveraging Smart Home and IoT for New Insurance Business Models. Parks Associates will also host the 14th-annual CONNECTIONS Europe: Strategies for the Smart Home and Consumer IoT on 10-20 November in Amsterdam, which will address insurance and smart home products.

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