The finance world is changing big time, driven by a wave of innovative technologies collectively known as Fintech. But what exactly is it? In a few words, it is a dynamic domain where IT companies like Relevant Software are developing tools and solutions that are transforming the way we manage our money.
Why is this transformation so critical? Traditional financial services, while established, are often riddled with inefficiencies, limited accessibility, and a lack of personalization. This translates to a frustrating and time-consuming experience for customers, who increasingly demand agility, convenience, and a tailored approach to their finances.
So, how can Fintech address these challenges? Let's look at the details.
Digital Banking
Fintech innovations are breaking down barriers to financial inclusion. Millions of people worldwide still lack access to basic financial services. Fintech is bridging this gap with mobile-based solutions that don't require traditional bank accounts. This allows individuals to save, send, and receive money securely, promoting financial independence and inclusion.
Payment Innovations
Remember when making a payment meant writing a check or waiting days for a bank transfer to clear? Those days are long gone. Now, peer-to-peer payment apps, contactless payments, and instant payment systems are the norms, radically reducing transaction times and increasing user convenience.
Automation and AI
Fintech introduces automation solutions powered by Artificial Intelligence (AI) that streamline tedious manual tasks. Mortgage approvals, for instance, can be significantly expedited with AI-driven document processing and risk assessment, saving both time and resources for lenders and borrowers. Similarly, AI-driven chatbots can handle customer inquiries 24/7, providing a level of service that was unimaginable just a few years ago.
Low Code Platforms
Low code platforms are shining as a new trend in fintech innovation. By using visual tools instead of writing code, creating fintech apps becomes much easier, helping close the skills gap. Fintech newcomers can harness the power of low-code platforms to quickly bring to life innovative ideas that stay in step with market trends
Blockchain and Cryptocurrency
It's impossible to talk about Fintech without mentioning blockchain. Through this technology, one can perform transactions securely and with transparency, without reliance on a centralized authority. Additionally, blockchain is used to prevent fraud, streamline cross-border payments, and improve supply chain transparency.
RegTech
The fintech sector moves fast, often outpacing regulatory frameworks. This can lead to a gray area where innovations flourish without adequate oversight, potentially leading to risks for consumers and the financial system at large. Therefore, collaboration between fintech companies, traditional financial institutions, and regulatory bodies is crucial to ensure that innovations benefit everyone without compromising security or fairness.
InsurTech
Insurance is another area ripe for disruption. InsurTech companies are utilizing tech to make insurance options more economical, widely available, and tailored to specific preferences.. Think pay-as-you-drive car insurance, or parametric insurance that pays out based on specific events, like a natural disaster.
Open Source & SaaS
For fintech startups, being quick and adaptable is key. That's where open source and SaaS (Software as a Service) come in. They allow companies to use and improve software without the hassle of managing it. This means more time focused on customers and less on tech headaches.
Embedded Finance
This means users can access financial services through non-financial platforms. Think buying insurance from your favorite online store or getting a loan from your ride-sharing app. It's making finance a seamless part of everyday life.
It's easy to get caught up in the excitement of all these innovations, but it's also essential to approach them with a critical eye. Regulatory hurdles, security concerns, and the digital divide (the gap between those with access to digital technologies and those without) are just a few of the issues that need addressing. Moreover, as the financial sector increasingly relies on technology, the risk of cyberattacks constantly grows, necessitating robust cybersecurity measures. But the potential benefits—increased accessibility, efficiency, and personalization of financial services—are too significant to ignore.
And what about the traditional banks? Some may argue that fintech is spelling doom for conventional banking institutions, but that's not entirely accurate. Sure, fintech is disrupting the status quo, but it's also pushing banks to innovate and adapt, leading to collaborations that combine the best of both worlds. Traditional banks are leveraging fintech to enhance their digital offerings, making banking more accessible, efficient, and customer-friendly.
Therefore, what can we expect for financial services moving forward with the rise of Fintech? It's a question many in the industry are pondering. While the trajectory seems clear—more automation, increased personalization, and further democratizing financial services—the pace and nature of these changes remain fluid.
What's certain is that those who can adapt to and leverage these innovations will find themselves at the forefront of a new era in finance. The journey is complex, but the destination—a more inclusive, efficient, and secure financial ecosystem—is undoubtedly worth the effort.
Of course, the rise of Human Factors Analysis Tools (HFAT) has forced financial services firms to push the envelope, but AI is gradually beginning to be integrated into the operations of firms across other industries. Perhaps, one sector which lags behind is insurance. However, according to Nikolas Kairinos, CEO and Founder of Fountech, attitudes are definitely shifting and in large part, this is due to the possibilities presented by AI toolsets.
Indeed, the venture capital community considers the insurance industry to be so ripe for disruption that Lemonade, a US InsurTech company, managed to raise $300 million in seed funding earlier this year. As an AI developer myself, I believe that the technology can drastically improve insurers at all levels, but only if industry leaders understand what AI actually offers and how to effectively integrate it into their organisations.
AI in InsurTech
The first, and arguably, most important part of this process, is having a sophisticated awareness of what AI in insurance actually means. For most firms, the benefits of AI actually come through robotic process automation (RPA); in other words, automating existing processes to save time and resources. For example, insurance AI exists which could remove the need for firms to manually classify documents, write contracts or process claims.
However, the most significant advantage that AI offers to insurance firms specifically stems from the way in which sophisticated algorithms can use vast datasets in order to predict and monitor risk. This would have many applications across the crucial functions of underwriting, pricing and risk management. Going further, the technology could even be used to prevent fraud by detecting tiny inconsistencies in either publicly available data or a client’s financial history.
However, AI doesn’t simply provide a competitive advantage for the forward-thinking firms who employ it, it also benefits policyholders who would enjoy cheaper premiums as a result of lower overheads and reductions in the amount of fraud.
Managing the transition
Still, some within the industry remain apprehensive about the impact of AI on either the employees or customer base of an insurance firm. The first thing is to say that many of these concerns, particularly around data security, are legitimate but it’s important that industry leaders do not see these apprehensions as an insurmountable obstacle. Integrating AI is not about saving resources for the sake of it but rather adopting new tools with the potential to improve the industry as a whole.
I’ve been developing software for professional services companies for years and based on what I have seen, I believe that successfully integrating AI into your services boils down to three things. Understanding the limitations of both the technology and your organisation, working with developers as much as budget and time constraints allow and being critical about where and why you’re integrating AI into your company’s operations.
At Fountech, we think it’s important for firms to understand what AI has to offer the insurance industry, and so we recently released a new white paper which explores how insurers might integrate AI into their business. Ultimately, with a proper understanding of AI’s strengths and limitations, industry leaders can begin adapting their firms to the rigours of the new data-driven landscape.
Towards a more intelligent future
As AI begins to play a central role in the functioning of insurance firms, it’s important that industry leaders remain invested in the technology’s potential to change insurance for the better. At root, this means having a sophisticated understanding of how AI can benefit your organisation but also remaining vigilant to any problems that might arise as a result.
Finally, as we move towards a more data-driven insurance industry, it’s essential that insurance firms begin playing a more active role in the development of new AI either through investment, active feedback, or by providing a breeding ground for new tools to be refined. Now is the time for insurance firms to begin playing a more active role in the development of the tools that are going to fundamentally reshape the industry over the next few years.
Technology is radically changing the way we live and interact. Customers are increasingly expecting smart, easy to use, one-click, mobile and personalised services. Insurance is part of this too, and as Irene van den Brink and Ingo Weber from the Digital Insurance Group point out, it’s time for the industry to be spiced up.
Data, analytics and AI are exponentially putting pressure on incumbent insurers to rethink every element of their business model. New initiatives are popping up, innovation garages are becoming popular in most traditional insurance companies and above all, we’re witnessing the rise of InsurTechs.
Initially, InsurTechs like Knip served as a wake-up call to incumbents. In the meantime, all insurance companies were at least talking about digital transformation. In the past few years we have seen an impressive rise of InsurTechs aiming to shape the future of the insurance industry and even though the number of start-ups is stabilising a bit, investment in more mature InsurTechs is consistently increasing.
Combining the efforts of InsurTechs and traditional players would have the most sustainable and impactful results in the market. Exploring ways to collaborate, we see a lot of traditional players setting up VC funds to invest, we see partnerships, and we see incumbents taking over InsurTechs in an attempt to accelerate their business. Let’s explore the three benefits that such collaborations could bring for both sides.
Combining the efforts of InsurTechs and traditional players would have the most sustainable and impactful results in the market.
Scalability
If we purely look at numbers, the impact of InsurTechs is still limited: traditional players still have access to a large customer bases whereas InsurTechs are often struggling with distribution and have a small market share. They both thrive on big numbers and scalability cuts both sides: a massive benefit of technology is the scalability it offers. In essence, technology allows for a digital model where increasing sales can be done at a stable cost level and the same goes for claims. Dutch digital insurer InShared was able to double in volume at the same cost levels, thus decreasing the cost ratio dramatically. Starting from scratch and getting to substantial numbers takes time.
While InsurTechs have innovation, they still lack volume, which is where the traditional players come in: they have the volume but need to find a way to serve at a lower cost. Getting existing portfolios on a platform helps in getting to higher volume and therefore, better ratios.
Time to market
The fast pace of an InsurTech can motivate traditional players to start ‘running’; there’s one comparison that has been used frequently – oil tankers versus speedboats. While traditional players used to be fine with yearly renewals of their base, InsurTechs are continuously developing or reinventing themselves – their middle name is ‘flexibility’.
AXA has announced that it’s launching a new cyber insurance with Slice Labs, which will allow them to launch a digital end-to-end cyber offering for SMBs in just three months. They use Slice Labs’ technology, underwriting and claims expertise - all combined with their own current dominant position. Another example is Zurich Insurance that works globally with the Digital Insurance Group to build new digital propositions on top of existing IT infrastructure at a record speed.
The low interest rate environment, weak insurance markets and changing customer behavior have put insurers’ profits under pressure.
The big challenge is to let InsurTech have its own speed, with different measures and KPIs, without trying to put the big oil tanker on top of it, as it will end up sinking. The best way to approach this is to use the entrepreneurial spirit and tech DNA of InsurTechs to inject new processes into traditional players’ offerings and work towards improving their customer experience.
Services
The low interest rate environment, weak insurance markets and changing customer behavior have put insurers’ profits under pressure. Acquiring new customers is becoming more expensive, which is why insurers need to find new ways to differentiate themselves from competitors and find new revenue streams. Introducing new services would be a great way to add new revenue streams as they not only open new business models, but can also add a huge value to clients.
Think of the way Ping An is boosting an ecosystem where they (as a traditional player) are the central platform to a number of different services (like health checks or telematics). InsurTechs can potentially be the providers of these services, and they could actually benefit from the enormous database that Ping An offers.
In Europe, Generali was given the exclusive rights of the Vitality programme (which originated in South Africa) as part of their plan to move away from simply paying their clients when things go wrong and focus on preventing bad things from happening. They see the Generali Vitality programme as a way to frequently engage with the customer and to reward them for looking after themselves, being careful and maintaining good health.
What we can take from all of this is that InsurTechs can undoubtedly help traditional insurers and contribute to building partnerships and ecosystems through API middleware, customer engagement platforms and new digital tools. When trying to determine whether they are friends or foes, it currently feels like they are both, but together, they have the potential to mutually benefit from one another and shake up the industry – watch this space!
About Digital Insurance Group
Digital Insurance Group is an InsureTech and a next-generation technology partner to insurers, banks and brokers globally that enables clients to innovate at record speed while leveraging their existing IT architecture.
The insurance market exists to transfer risk from those who face it to those who can afford to assume it; at a price. In a world that is developing at an ever-increasing rate, risk is also changing, and insurers must constantly adapt the products that they offer to ensure that they are protecting risks that affect the modern world. Over the next few years, it can be expected that cryptocurrency covers will become commonplace and insurers will take a leading role in developing security standards.
At a time when the risk of bank robberies and wages snatches has declined substantially and motoring has become safer, aeroplanes are less likely to crash and other traditional areas of risk are declining, insurers must look to developing areas of risk and provide cover against those risks.
Not long ago, it was necessary, if one wanted to take money from a bank, to pull a stocking over one’s head, saw off a shot gun and take enormous personal risk, as well as the risk of being caught, in an attempt to deprive a near-by bank of cash. Today, the risks for robbers are much reduced but the risk for those holding money is greater. A modern robber can seek to steal money held across the world from the safety of his bedroom. His personal risk is considerably less as is, potentially, the risk of him being caught. The risk to those holding money, however, has changed and has possibly become greater.
While insurers were responsible for many of the innovations that made banks safer, now they must lead the way in enhancing security for those who hold cryptocurrencies. Insurers are working closely with cybersecurity experts to develop standards for their policy holders, often offering discounts for adoption.
Therefore, they are looking at uses of both cryptocurrencies and blockchain in the way in which they work. Already, insurers are being required to hold cryptocurrencies in order to handle some aspects of cyber insurance, particularly when their role may be to negotiate and pay ransom demands from hackers.
While insurers were responsible for many of the innovations that made banks safer, now they must lead the way in enhancing security for those who hold cryptocurrencies.
Where protection is given against cryptocurrency theft, insurers may increasingly seek to protect themselves against currency exchange fluctuations by charging premium, holding reserves and paying claims in cryptocurrencies.
In addition, the development of InsurTech is creating an environment in which insurers must compete to reduce premium levels by increasing efficiency. Expense ratios are already too high and insurers are looking to reduce these substantially on the basis that, if they don’t, their rivals will be able to undercut them.
As part of this efficiency, insurers are exploring uses of blockchain to reduce the frictional costs associated with the provision of insurance cover and obtaining reinsurance for it and some blockchain transactions have been concluded already. Major insurers and reinsurers are investing considerable time and money into this area and, without a doubt, the results of this investment will shortly become common practice.
One idiosyncrasy of insurance makes the creation of a closed contract for blockchain insurance problematic. Every insurance and reinsurance contract requires an insurable interest and proof of loss before any claim is paid. These elements mean that an entirely closed contract, which operates without outside intervention, is difficult. At some stage in the process, an adjustment of the claim will be required and an external element will have to be injected into the process.
That said, steps are afoot, both within insurers and regulators, to look at these issues and determine whether changes to the underlying principles may be effected, which would lift this potential road block.
To survive, insurers must embrace modern risk and modern working practices. The rate of change in the insurance industry is rapid and accelerating and within the next five years, we can expect considerable developments - both in terms of the risks that are assumed and the way in which risks are assumed.
Website: https://mccarthydenning.com/
A recent report form PwC concludes that UK investment in InsurTech in the second quarter of 2017 surpassed that of the previous three quarters, increasing to $290 million (£218m) in the first half of 2017, compared to $9.7 million (£7.3m) the year before.
Global investment in InsurTech by global insurance firms, reinsurance firms and venture capital companies surged 247% to $985 million.
Mark Boulton, Insurance Sector Lead at Fujitsu UK & Ireland has this to say to Finance Monthly:
“This year has been phenomenal for the insurtech industry in the UK, and these latest figures reflect it. Increasingly, we see the market gaining momentum, and the amalgam of data made available is reshaping the industry in an unparalleled fashion. Investors are coming to much better understand the values that lie within a connected world, from more dynamic customer relationships to personalisation and need for tailor-made solutions.
“Fujitsu’s recent research looking into the UK’s digital landscape showed that nearly 40% of people want the UK to make faster digital progress. As such, insurers need to keep up with the rapidly changing dynamics and unlock the power of technologies.
“Although many insurance companies have digital on their radar, it is important for this industry to take advantage of digital innovation by not only creating savvy online apps and improving the digital elements on the consumer-facing side, but by also implementing digital throughout the business. This will help insurers not only save more, but also become more integrated and process efficient. The amount of deals and investment in the past year are a vote of confidence and now is time UK claims its role as a global insurtech hub.”
