InsurTech

InsurTech, a blend of "insurance" and "technology", is the use of digital technology to change how insurance is designed, sold, priced, administered and claimed. It covers start-up insurers built around an app, brokers and comparison sites that sell online, software suppliers to established insurers, and techniques such as telematics, parametric triggers and automated claims handling. It is usually counted as a branch of fintech.

InsurTech works within one of the most heavily regulated parts of finance. Whoever carries the risk must be a licensed insurer with enough capital to pay claims, so many InsurTech firms act as agents, brokers or managing general agents that sell and service policies while an established insurer or reinsurer holds the risk. The International Association of Insurance Supervisors (IAIS) and national supervisors have published work on how digitalisation affects consumers and the insurance market.

Insurance is an old idea: many people pay a small amount into a shared pot, and the few who suffer a loss are paid out of it. Traditionally that involved paper forms, an agent visit, a long questionnaire and, after a loss, a claims adjuster and weeks of waiting.

InsurTech keeps the shared pot but changes the plumbing. You might buy travel cover in two taps while booking a flight, pay for car insurance based on how carefully you actually drive, or receive a payout automatically when a weather station records a drought, without filing a claim at all.

InsurTech touches every stage of the insurance value chain:

• Distribution. Online sales, comparison platforms and insurance offered at the point of sale inside another product, part of the wider embedded finance trend (for example, gadget cover sold with a phone or delay cover sold with a ticket).
• Underwriting and pricing. Insurers use more data sources and statistical models to assess each risk. Usage-based motor insurance draws on driving data from phones or devices in the car, and home or health cover may use connected sensors from the Internet of Things (IoT).
• Policy administration. Cloud-based policy systems replace older mainframes, making it quicker to launch and change products.
• Claims. Customers report losses through an app with photos; software triages simple claims for fast payment and routes complex or suspicious ones to people. Fraud detection models flag unusual claim patterns.

Technology has also enabled product designs that were impractical before:

• Parametric insurance. The payout is triggered by a measured index, such as rainfall, wind speed or earthquake magnitude, rather than by an assessed loss. Claims are paid quickly, but the payout may not match the actual damage, a gap known as basis risk. It is related to the weather derivative, and the IAIS and the BIS Financial Stability Institute have examined its role in closing natural-catastrophe protection gaps.
• On-demand cover. Insurance switched on and off for short periods, for example only while a car is being driven or a camera is being carried.
• Peer-to-peer and mutual models. Small groups pool premiums, with unused money returned or donated; these echo older mutual and takaful structures.
• Smart-contract cover. Some crypto-native schemes use a smart contract and a blockchain oracle to pay automatically when a defined event is reported on-chain.
• Microinsurance. Low-premium cover sold and collected through mobile money wallets, important for financial inclusion in Africa and South Asia.

Insurance regulation applies whatever the technology. Carriers need a licence and must hold capital; intermediaries must be authorised and follow conduct rules. In the United States, insurance is regulated by the states, coordinated through the National Association of Insurance Commissioners. In the European Union, Solvency II sets capital rules and the Insurance Distribution Directive governs how products are sold. In the United Kingdom, the PRA and the Financial Conduct Authority (FCA) share supervision; since January 2022 FCA rules have banned charging renewing home and motor customers more than equivalent new customers. Several supervisors, including India's IRDAI, run a regulatory sandbox for new insurance products.

InsurTech raises questions that go to the heart of how insurance works:

• Fair pricing. The more precisely risk is priced, the less risk is shared. Very granular pricing can make cover unaffordable for high-risk people, and models may reproduce bias against protected groups.
• Information problems. Insurers have always faced adverse selection and moral hazard; monitoring data can reduce both but at a cost to privacy, which brings in data privacy rules.
• Explainability. Customers refused cover or a claim are entitled to understand why, which is hard with opaque models.
• Business durability. Several listed InsurTech carriers have found it difficult to reach underwriting profit, showing that technology does not remove the need for disciplined risk selection.
• Dependence on partners. Distribution-only firms rely on insurers and reinsurers for capacity, which can be withdrawn.

InsurTech overlaps with WealthTech in savings and life products, and with RegTech where insurers automate compliance and reporting.

• International Association of Insurance Supervisors (IAIS)
• National Association of Insurance Commissioners (NAIC)