Insurance industry: changes, companies and their markets’ sectors

The insurance industry is one of the most important economic activities within the so-called BFSI (Banking, Financial Services and Insurance). It is currently facing a series of challenges derived from the changes that have taken place at a social and economic level in recent years. From the irruption of new business models that have turned the market upside down to important changes in the macroeconomy that have affected it.

In this way, the insurance industry has driven changes in different areas. At the operational level, digital solutions derived from the emergence of InsurTech are making it possible to transform complex use cases into practically automated activities, and in the commercial area, new ways of dealing with new clients (with a focus on anti-fraud and experience) stand out.

In this article we will review the current state of the industry, the insurance companies, the challenges faced by underwriter and insured clients and the role of new players that have emerged in the ecosystem.

What is the insurance industry

The insurance industry and sector is the set of economic and social actors involved in the transmission of risks through policies and similar services. Through contracts, underwriters and policyholders agree and commit themselves to transform risks into probabilities by transferring responsibilities.

Through the collection of a premium from the policyholder, the insurance company (underwriter) obtains funds to be able to face an event with an estimated probability. In the event of damage to the insured client (it may be to the person, movable and immovable property, etc.) the underwriter must indemnify the beneficiary of the insurance policy as defined in the coverage with capital (identifying the loss), with an annuity or by providing a previously agreed service.

This is a basic and elementary definition of the insurance sector since today insurance companies and the insurance industry as a whole have evolved in such a way that there are many types of products and services beyond traditional policies. In addition, new figures and agents have emerged.

Insurance industry: players beyond the traditional companies and their current status

In the future, we will see greater collaboration between disruptive startups that have revolutionized the way policies are written, and banking and large insurance companies. The former are taking advantage of the technologies that the latter decided to risk in the first instance and have given credit to the results obtained after their implementation.

1. InsurTech

The insurance industry has undergone a revolutionary metamorphosis thanks to the irruption of technology and innovation, giving rise to the flourishing of InsurTech. This phenomenon represents a radical evolution in traditional business models, ushering in an era where agility, personalization and efficiency are the cornerstones.

One of the most impactful trends in InsurTech is the ability to offer customized insurance to each customer. This is made possible by advanced product configurators such as those found in solutions like Customer Hub. Through massive data analysis and artificial intelligence, companies can assess risks on an individualized basis, enabling the creation of tailored policies. This not only meets customer expectations, but also optimizes risk management for underwriters.

InsurTech embraces emerging technologies such as artificial intelligence, machine learning, telemetry and blockchain to revolutionize traditional processes. Artificial intelligence is used to assess claims faster and more accurately, while telemetry enables real-time monitoring to adjust premiums based on policyholder behavior. The blockchain, meanwhile, ensures transparency and security in transactions.

A disruptive and outstanding example is that of on-off insurance: applicable to homes or vehicles in particular, premiums are only paid when the insured property or item is in use. A feasible and meaningful business model only possible thanks to innovation and new systems.

RegTech

The irruption of RegTech in insurance has marked a crucial change. These technology partners enable companies to automate compliance by implementing cloud systems in key processes. This transformation has minimized phishing attacks. Comprehensive anti-fraud systems have achieved an impressive result: not only reducing attacks, but achieving zero fraud, ensuring security with no noticeable inconvenience to the user and optimizing conversion in procurement processes.

Additionally, studies indicate that users are willing to pay more for services that guarantee the protection of their data. Investment in RegTech technologies within the insurance industry emerges as an effective response to address these concerns.

These market players accompany both traditional underwriters and banking and digital businesses in the insurance sector in processes such as digital onboarding, electronic contracting and the automation of due diligence processes in brokerages.

3. Digitization providers

The rise of InsurTech has been driven by the creation of digital platforms that simplify the interaction between underwriters and customers. These platforms offer intuitive and accessible user experiences, as well as increasing conversion in online sales processes. The autonomy given to users through customer portals allows policyholders to manage policies, file claims and receive advice virtually. The customer experience thus becomes a key differentiator.

Strategic alliances with specialized partners and integration with technological ecosystems allow underwriters to access innovations in a more agile and fully scalable way. This fosters the creation of solutions that are more robust and adaptable to changing market demands.

Process automation has become a fundamental pillar in redefining business models in the insurance industry. From policy issuance to claims management, the implementation of automated processes not only improves operational efficiency, but also reduces costs, enabling underwriters to offer more competitive premiums.

Customer experience, digital onboarding, identification and other trends in the insurance industry

News in the insurance industry in recent years has focused on statistics and trends related to the digitalization of processes, the regulatory framework and the fight against fraud. Fortunately, on a positive note, as the innovations of the players we have previously described have allowed the insurance industry to grow and evolve, with great benefits for both policyholders and underwriters.

Fraud, AML and Automated Regulatory Enforcement

For years, the insurance industry has faced severe sanctions due to non-compliance with regulations and standards proposed by authorities in various markets, most notably the European Union, the United Kingdom and North America. Identity and related fraud has become a primary concern for insurance companies, capturing the attention of regulators. Data privacy policies, such as GDPR in Europe, are making headlines, with significant penalties for industry leaders.

Another important aspect is the fight against money laundering and terrorist financing (AML). Regulations such as AML6 have revealed that many insurance and brokerage companies were not carrying out the relevant due diligence and KYC (Know Your Customer) checks.

2. Marketing in more complex segments

The establishment of extensive commercial networks is essential for underwriters and brokerages adapted to the competitiveness of the insurance industry. Efficient management of these networks, both proprietary and alternative, has become crucial to success. Commercial Hubs enable capillary management, providing commercial teams with tools to work efficiently and focus on high-value tasks, avoiding bureaucracy.

These systems include rate configurators, commission models and contracting systems, facilitating commercial work at the point of sale. The ability to obtain statistics in real time has enabled insurance companies to adapt nimbly to a constantly changing market.

Diversification in InsurTech is manifested in the creation of specific solutions for different market segments. From specialized insurance for frequent travelers to coverage tailored to the needs of small and medium-sized companies, customization extends to various niches, catering more precisely to individual demands. It is crucial to have the necessary sales tools to reach these segments effectively.

3. Customer experience and simple contracting

Optimizing operating expenses is essential for insurance companies. The adoption of digital tools and technologies such as RPA, artificial intelligence and machine learning has led to significant cost reductions in day-to-day processes. Instant insurance activations, such as those offered by systems like Sign + KYC Identity, have transformed the industry.

The integration of KYC solutions in Customer Hub allows a mixed approach, adapting to different markets. In the past, underwriters relied on consultancies for transformation projects, facing challenges such as high costs, IT team lock-in and development delays. Now, cloud-based SaaS and PaaS solutions, backed by AI and ML, offer an affordable and agile alternative, transforming insurance companies' operations significantly.

How insurance is classified: types and new verticals

On the other hand, we see a classification of insurance according to the type of contract in formal (contractual) matters and on what aspect the risk is assumed. These are combinable and focus the way in which underwriters and brokers (mediators) work in the insurance market. Therefore, we can make another categorization of companies when classifying insurance by type of contract:

• Traditional policies: A standard insurance contract between an underwriter and an insured.
• Coinsurance: Similar to a normal policy but with several underwriters independent of each other.
• Reinsurance: Method in which the underwriter cedes risk to reduce possible losses.
• Deductible or franchise insurance: A traditional insurance policy where the insured participates in the loss caused by a loss.
• Renting: Although not considered insurance as such, these leasing contracts consist of an agreement where one party assumes the risk of buying and maintaining, for example, a fleet of vehicles and the individual who rents it pays for it. Many insurance companies have chosen to work with this business.

Finally, we come to the most relevant classification, based on the purpose of the insurance coverage and service provided by the companies:

• Property, damage or patrimonial insurance (home, vehicles, boats, objects, theft, credit, multi-risk, engineering, civil liability, business and patrimony, goods, employees...).
• Accident insurance
• Personal, group (e.g. homeowner's associations) or commercial insurance
• Health, dependency and sickness insurance
• Life and death insurance
• Service insurance (travel, legal defense, death insurance...)
• Veterinary insurance
• Corporate insurance
• Protection (payment protection, unemployment, rent, etc.)
• Pension plans
• Savings / investment plans

In our article on insurance contracts and their law we analyzed the formal types of insurance. According to this other classification, we would highlight surety, credit, agricultural and compulsory insurance, for example.

In short, the insurance industry is undergoing a transformation driven by innovation, InsurTech and new types of insurance. The ability to offer personalized insurance backed by technologies such as artificial intelligence has enabled underwriters to adapt to changing customer expectations.

The convergence of InsurTech, RegTech and digitalization is shaping an exciting future for the insurance industry, where innovation will continue to play a key role in creating more efficient, personalized and customer-centric solutions.

Tags