Digital Transformation in the Insurance Industry: “Insurtech”

Digitalization in the financial sector and innovation in bank products and services are evident today. For example, personalized, fast and user-friendly services offered by the open banking system in banking are among the most concrete developments of digital transformation. In this way, many transactions can be easily handled online without going to the branches. From this point of view, we can say that financial digitalization, which started with the banking sector, also affected the insurance sector. In fact, Sigortam.net CEO Bora Uludüz states that 16 billion dollars have been invested in insurtech startups worldwide in 2021, and that there have been more than 30 unicorns in this field to date. In this article, where we discuss the concept of insurtech, which changes the dynamics of the insurance industry globally, we will explain the digitalization in the insurance industry, which is on the way to becoming a trend, its importance and the technological tools in the insurtech model.

What is "Insurtech"?

Insurtech is a combination of the words “insurance” and “technology”, inspired by the term fintech. Conceptually, it is designed to increase cost savings and efficiency by integrating technological innovations into the existing insurance industry. Therefore, it aims to transform the classical premium collection and compensation payment structure in the insurance sector into an innovative and user-oriented sector with the use of big data and customer expectations. It achieves this goal by offering ultra-customized policies, social insurance and new generation insurance products. Premiums of the insured are determined dynamically as a result of the analysis of their behavior with the data obtained from their internet-enabled devices.

Unlike companies based on traditional insurance understanding, insurtech based companies use basic data to identify risk groups. For example, it analyzes the geographical location tracking and smart wristband activities of the cars belonging to the insured, and prices the products more competitively by using inputs from all kinds of similar devices, and creates better defined risk groups. It uses deep learning-trained artificial intelligence (AI) to identify risk groups and accurate pricing models.

It is also useful to explain the concept of Insurtech with examples to make it more understandable. Insurance companies also benefit from the QR code application that has entered our lives. With the feature of getting offers with a QR code, drivers can quickly select the vehicle insurance that suits them by scanning the QR code on their vehicle license. Users who want to have life insurance can quickly handle services such as application or renewal of their policies through the mobile application. To get expert help, it is enough to talk by video. The customer, who reaches the suitable offer in terms of each insurance, is included in the system with a credit card and mobile signature and can purchase the policy.

Why Choose Insurtech Based Companies?

• Insurtech cares about customer needs and experiences.

The Customers learn more about choosing insurance product coverages and getting personalized service. The policyholder explores and explores options using the internet and mobile applications. Instead of going to a branch or speaking to a representative, insurtech's future is insured with an online agreement, by identifying the most suitable product for customers.

• Insurtech increases productivity. Many insurtech companies allow users to quickly access the information they need at any time, without getting bogged down in the process, without having to wait for office hours or an available representative.

• Insurtech stands for individuality. Due to the innovative nature of information collection and data processing, many new tools have been developed to better detect the true needs of each individual. This not only improves pricing, but also offers more reliable and consistent coverage based on historical data.

• Insurtech provides flexibility. Modern insurtech offerings are more likely to have flexible, customized, short-term or transferable plans. Rather than being locked into long-term arrangements, insurtech has a priority to provide individuals with a specific scope of products and services for a specific need over a specific period of time.

• Insurtech reduces operating costs. While traditional insurance companies operate in physical locations, insurtech-based companies network with customers around the world by working remotely. With the online company model, there is less overhead, insurtech companies that eliminate a physical office or staff have minimal costs. Due to the lower costs, it often offers its customers lower prices.

Innovations Driving Insurtech Change

Changing the shape of the process required to be insured, insurtech continues to pursue its goal of being permanent in the sector thanks to the range of technologies used, growing and developing. One of the most notable technologies utilized is artificial intelligence. AI systems now allow certain tasks that previously required human intervention to be performed solely based on technology. For example, where previously it was necessary to interact with agents to answer customers' questions, chatbots now allow the customer to get help solving their problems without speaking to a human. Another technology is seen as machine learning. In its simplest terms, machine learning focuses on the use of data and algorithms and is the compilation of predictive models from the data obtained. If future data is integrated into the model with machine learning, it can already "learn" or continually "assess" how to calculate appropriate premiums based on demographic or risk profiles. Developed automation tools, on the other hand, appear when insurance customers fill out an online document, save it or issue a ready-to-sign policy. Insurtech is also developing in conjunction with innovative hardware technologies. For example, drones can be used to determine the value and damage of properties or to inspect insured claims. Especially since drones have the feature of taking high-resolution photos and videos, they are being used by many industries, and this contributes to reducing costs in most companies. We can say that another insurtech tool based on physical innovation is the internet of things. Although a digital concept, IoT relies on the interaction between physical products and software. For example, auto insurers now commonly use devices that measure vehicle speed, handling and driving habits to reward positive driving habits or penalize negative driving habits. The US-based company Avinew is seen as a pioneer in the insurtech industry in IoT technology. The company offers lower premiums to customers who change their driving habits, choose less risky routes or use an automatic driving system. With "big data", insurance companies now calculate their premiums based on the smallest details. Companies that analyze the risk profiles of their customers according to their habits and characteristics both calculate premiums and offer appropriate insurance products with the millions of data they collect. So much so that the company called Dacadoo, founded in Switzerland, collects data from customers' devices such as phones and smart watches via API. The data collected allows Dacadoo to assess risk in real time and create individualized profiles, positive or negative.

What does the law say?

While innovative steps in the insurance sector are progressing slowly, there are many reasons why established insurance companies are not in a hurry to adapt. Most Insurtech startups still need the help of traditional insurance companies to handle underwriting and manage catastrophic risk. However, as it attracts consumers with its refined model and user-friendly approach, it can be said that established players are warming to the idea of insurtech and are interested in purchasing some innovations. The insurance industry is a highly regulated industry with a multi-layered legal structure. A number of changes have also been made in Turkish law, in the field of insurance, especially with the impact of the COVID-19 pandemic. For example, in the 5th article of the Regulation on Information in Insurance Contracts, it is possible to provide information in the digital environment. For this purpose, 3DSecure concepts were included for the security of permanent data storage and payments made by debit or credit card in case insurance contracts are made at a distance. Permanent data storage is the recording of the transmitted information in media such as text message or e-mail, when it is not possible for the parties to come together in a physical environment. In such cases, insurance companies are obliged to record the information text, for example, if they inform about the insurance contract via e-mail or text message. At the same time, it is foreseen that the conversations will be recorded in cases where the information is made through the call center or telephone. In addition, through the relevant legislation, remote appraisal procedures are provided at the time of damage, and remote examination services are provided within the scope of health insurances, regulated by the Regulation on the Delivery of Remote Health Services.

Adoption of insurtech methodologies to ensure the confidentiality of personal data creates some reservations by companies. The tracking devices, which can detect whether the customer actually stops at the stop signs, also track the customer's location, the places he has visited and how long he has stayed at these locations. As a result of this follow-up, many data are processed with the use of artificial intelligence technology. In such cases, it is important to comply with the KVKK and board decisions in order not to cause violation of the fundamental rights and freedoms of the persons whose personal data are processed.

Result

• Insurtech is the use of technological innovations designed to make the current insurance model more efficient.
• Insurtech enables products to be priced more competitively using technologies such as data analytics, IoT and artificial intelligence.
• Insurtech is used to process claims more effectively, assess risks, process contracts or warrant policies.
• Insurtech is like fintech in that both leverage modern solutions that revolutionize every traditional industry.
• There are some problems for Insurtechs, especially due to regulation and reluctance of established insurance companies to work with them.

The insurance world is developing rapidly thanks to the solutions offered by technology companies. With Insurtech, businesses can deliver a better customer experience for less money. This creates a win-win model. It will be interesting to see the different business models developed to create and leverage technology and how they affect the industry in the future.

By Onur Kucuk, Managing Partner, and Ezgi Anasiz, Associate, KP Law