After decades of stagnation in the insurance industry, technological disruption is finally here. It has been long enough since the advent of insurtech to say with confidence that insurance technologies weren't simply a fad - they are here to stay.
With African and Asian insurtech companies gaining ground in their respective regions, we are talking about a global revolution in insurance.
Artificial Intelligence (AI), the Internet of Things (IoT), and blockchain have the potential to make insurance plans more cost-effective, faster to underwrite, and tailored for policyholders' needs. But now that insurtech has got its proof of concept, it is crucial to ask what effect these technologies will have on the consumers.
For the optimizations to become reality, insurers will need to collect and process a lot more data than ever before. Can consumers trust insurers with their data privacy and security? And will their privacy be breached in the process?
IoT is one of the most promising technologies for insurance. Wearable devices, such as Fitbit or Apple Watch, offer insights into the lifestyle and habits of potential policyholders better than any questionnaire could ever do. Knowing how many hours of sleep someone gets, how often their exercise, and whether they are a chain smoker or a binge drinker, is invaluable data for health and life insurance risk assessment.
Some insurance companies are so optimistic about IoT that they started offering the so-called interactive life insurance: one that relies on data from wearable devices for underwriting. For now, giving up fitness tracker data is not mandatory, but insurance companies strongly encourage it by offering discounts and perks.
What might seem like a great idea for landing lower premiums and extra perks is actually a great risk for data security. IoT devices are infamous for poor data protection. Not only are they easily hackable, as countless researchers and security experts proved. The manufacturers of the hardware themselves have a pretty bad track record of protecting consumer data. This year's revelations about most major tech companies, including Apple, spying on users show that consumers can't trust tech giants with sensitive information.
Of course, there are ways users can counteract those security risks. They can change the preset password on their IoT devices (companies often ship all devices with the same password) and update the operating system whenever possible. Most IoT devices are unencrypted but users can go around that by installing a VPN on their internet router: that way, any device connected to the home network will be automatically encrypted.
These home-grown security strategies are not foolproof, however, and require users to have a certain degree of tech expertise. While they might serve as a band-aid solution, the only long-term change can come through increasing industry-wide security standards.
Consumer DNA testing is on the rise thanks to the affordable DNA testing kits and services. In fact, those services are so affordable that skeptical consumers start to wonder what the real price of the DNA test is. And sure enough, DNA testing companies have complicated interests. For example, a pharmaceutical company GlaxoSmithKline bought access to 23andme's database for a whopping $300 million. The real consumers here are companies buying access to genetic information.
The insurance companies' interest in DNA test results sits uneasily with many. Right now, applicants seeking life insurance policies are required to give all medically relevant information during the underwriting process. This leaves a grey area that validates insurersâ€™ requests for consumer DNA tests results.
Critics point out that this practice could likely lead to unethical biases, with some people getting more expensive policies or even being denied services. This would be particularly harmful given that DNA tests show predispositions for sicknesses and are not a guarantee that a policyholder will actually suffer from these illnesses.
Social media says a lot about users and insurers might soon join the ranks of companies interested in that information. The state of New York has officially allowed insurers to use the information gathered from customers' social media accounts to determine their premiums. Other countries have very little legal guidance on this issue, leaving a grey area for insurers.
Fraud detection is the number one reason why insurers might be interested in policyholders' social media accounts. Posting pictures of hiking trips while they've supposedly got a broken leg might get policyholders into trouble.
The second advantage of social media stalking is using it for predictive modeling during the underwriting process. Using technologies like AI, insurers can analyze consumer's social media footprint within seconds to determine their habits and likelihood of taking risks.
It looks like insurtech will join the growing list of technologies that make life easier but hurt users' privacy. Lower premiums and better services will come as a trade-off that many policyholders won't be fully aware of. In a fast-paced, competitive market, insurers are unlikely to put data privacy and security as a priority either. As in most cases, it is up to regulators to ensure that the tech industry handles data properly.
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