Why Fintech Is Slowly Integrating Into The Insurance Industry

https://finovate.com/why-fintech-is-slowly-integrating-into-the-insurance-industry/
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The following is a guest blog post by Paul Monaco, Client Director at Focus Oxford Risk Management

The adoption of financial technology continues to rise in general. This progression over time means that not only are there more platforms and use cases for fintech, but companies are also becoming more acclimatised to integrating them into their business plans.

Historically, insurance as a sector has been slower to adopt the latest in technology, and the case of financial technology is no expectation. Often pictured as huge swarms of suited figures in high rise buildings, in fact, the insurance industry is populated with businesses of varying sizes and diverse specialities.

As such, we can see a discrepancy in the adoption of the latest fintech solutions within insurance. The largest corporations offering simpler policies benefit from enhanced budgets and capacity, leaving them in good standing to adopt the solutions internally. The wealth of data available to these businesses also makes the benefits to them greater. Conversely, smaller providers and brokerages offering more bespoke policies have less faith in the ability of fintech to actually make their lives easier, and often with a lower ceiling of reward.

The current adoption of fintech in insurance

Adopting the advancement of technology at policyholder level is a clear example of how larger insurance companies are utilising fintech at the moment. The Internet of Things allows more devices than ever to report data. In the case of car insurance, policyholders are offered the use of an application with the incentive to potentially reduce premiums. This allows increased telemetrics data which can then feed into a better understanding of risk and necessary premium and coverage levels.

This adoption of policy level technology is also seen by some insurers within the health and life insurance sector. Increasingly, a consumer may be offered a device, such as a smartwatch, which not only incentivises the person to take out the policy but also gives opportunities to better understand the data behind claimants for insurance providers.

While consumer insurance is most commonly synonymous with fintech, there is an emerging case for use in the commercial sector. The utilisation of smart sensor technology for flood risks coverage is becoming more common when providing insurance for businesses. The lower cost of such setups is certainly a mitigating factor, and also allows for simpler types of coverage that reduce claim payment periods.

The key differentiator could be considered the gathering of data for companies of differing sizes in the insurance sector. At present, large providers can gain a better understanding of their clientele, allowing them to adjust policy requirements to minimise risks over time.

However, the use of existing customer data has been adopted more recently by insurance companies of all sizes. Once a policyholder has taken out a policy, the benefits of automated touchpoints have become valuable to even the smaller companies. With the use of data such as policy renewal dates, sequences can easily be created to keep in touch with customers and introduce the idea of relevant cross-sell opportunities at an early stage as they come up to renewal. Software itself is usually fairly intuitive. Platforms such as Brief Your Market remove the intense training previously required to run campaigns effectively internally.

What is slowing the adoption of fintech?

While fintech will surely become even more intrinsic to the insurance sector in the future, there can be no doubt that adoption rates will continue to be slow for most. That adoption is not from a lack of knowledge; 74% of respondents to a 2014 survey saw fintech innovations as a challenge for the insurance sector.

Interestingly that same survey found the insurance industry placed a higher than average value to fintech, compared to other financial sectors. This shows the constraints on insurance companies aren’t as clear cut as they may seem. Fears of reducing margins down even further and of moving from a focus on short term strategies to longer-term ones are likely constraints.

Furthermore, the adoption within the more specialist arms of the insurance industry will be understandably slower to adopt fintech at all levels. The nature of specialist insurance brokers hinges on their speciality of providing a human service for those that require a particular level of coverage or have constraints preventing traditional policies. Utilising fintech could prevent brokers from providing this high level of service.

Within such sectors, it’s likely that the primary use of fintech will continue to be more for leveraging current customer data and refining internal operations to save time.

What’s in the future for fintech & insurance?

Naturally, the unstable financial situation brought on by COVID-19 will likely lead to slightly lower adoption rates in 2021. Whilst the application of AI and increasing understanding of policy risks may continue to be alluring to providers, it’s highly unlikely that this will accelerate given the impact of the pandemic on the industry.

Moving beyond the ripple effect of COVID-19 there is no doubt that fintech will continue to grow, and increasingly so within the smaller providers and brokers. Likely, platforms will develop that will be more focussed on partnerships with these companies, rather than the internal adoption seen by the largest companies with the highest budgets.


Paul Monaco is Client Director at Focus Oxford Risk Management and specializes in the advice and arrangement of specialist business insurance and risk management to the Life Science, Medical Device, Scientific Research and Technology Sectors from new business start-ups through to PLCs.

https://finovate.com/why-fintech-is-slowly-integrating-into-the-insurance-industry/