Insurance companies everywhere are racing to adopt the latest technology, utilizing it to offer better, more personalized products, and increasing their profitability—all while reducing costs for their customers. That seems like an inherent contradiction; how can insurance companies make more money while charging less for the average customer?
The answer is related to how new technologies improve the cost-efficiency of the process while simultaneously increasing companies’ abilities to evaluate risk.
Automation and Digital Tools
First, you have to consider the sheer number of automatic and digital tools available to insurance companies. Thanks to online platforms, it’s possible for customers to easily shop for the best auto insurance policy, and personalize their policy. It’s also possible to submit payments, confirm policy details, or even make a claim using apps and websites. This reduces the need for insurance companies to hire full-time customer service representatives, which reduces total costs for customers in turn.
Data Analytics and Risk Analysis
The big money-maker here is in data analytics. Insurance companies make money by accurately calculating risk and charging customers a reasonable amount of money for financial protection. Access to more data and better data, combined with better data analytics technology, means that insurance companies can calculate risk with much greater accuracy. They can charge the lowest rate possible while still making money, and proactively identify the people who are genuinely likely to be the biggest financial risk. This does have some consequences; for example, someone may be identified as a major risk because of factors beyond their control, pushing rates higher for them. But overall, this increased access to data is a good thing for companies and individuals alike.
Personalization
Better technology is also enabling insurance companies to brainstorm and create new, more personalized policies for individuals. Historically, it’s been more efficient to offer big, generic packages that nearly everyone can partake in. However, individual policies offer much more efficiency and flexibility. When customized for an individual, a policy can take far more variables into account; it can combine elements of different policies, and come up with a risk coverage map and price point that works ideally for the individual, specifically.
Cybersecurity
Security is a major issue for insurance companies. The global average cost of a data breach has increased to $3.86 million, and any major cost to an insurance company will surely translate to a higher cost for all paying customers (or lower profitability). Thanks to better cybersecurity tools, insurance companies can protect their customers’ data more efficiently, reducing both the risk of a major data breach and the ongoing costs of important cybersecurity measures.
The Blockchain
The blockchain can be used in the insurance industry in a variety of applications. In case you aren’t familiar, the blockchain is a technology most recognized for its application in cryptocurrency (including Bitcoin). It relies on a cryptographically protected, yet shared ledger between individual devices on a shared network to keep track of exchanges. For currency, this means recording transactions in a secure way that prevents fraud or tampering. In the insurance industry, it could eliminate certain sources of fraud entirely, improve the security of medical records, and simplify the flow of both information and payments. All of these have the potential to improve efficiency, reduce costs, and make insurance processes more convenient.
How to Benefit
So how can the average insurance customer benefit from these tech developments and get lower insurance rates?
- Choose high-tech companies. When possible, try to work with companies that have made a conscious effort to upgrade their technological infrastructure, or those that are pursuing the latest and greatest in insurance tech solutions. These are the companies inclined to see the greatest efficiency gains, and the ones most likely to see reduced costs for customers in the near future.
- Opt for personalization. Don’t settle for a generalized policy. Chances are, you can save money and get better coverage at the same time by getting a more personalized series of insurance policies.
- Reduce your risk profile. You may not be able to control every variable related to your insurance-related risks, but you can make a conscious effort to improve your risk profile wherever you can. Some companies even offer direct opportunities to reduce your risk profile, such as submitting your driving data via telematics.
Technology in the insurance industry has the potential to make the insurance environment better for every player in the market, including both companies and individuals. There are bound to be some hiccups in the execution of these strategies, but if you try to optimize your risk profile and pay close attention to how these technologies work, you could benefit enormously in the years to come.
