Thursday, June 20, 2024

How to become an innovator in InsurTech

How to become an innovator in InsurTech

By Timofey Volkov, CEO of CryptoIns

Today’s insurance industry is not insulated from the technological revolution. However, insuring online is still a challenge only possible in a few sectors. When will real and functional products be introduced to the mass market? And how can one become an innovator in this industry?

Technology is revolutionizing the insurance market

New forms of technology are gradually interfacing with classic insurance products – AI, big data, machine learning, blockchain, and more. What will be the benefit for customers? An opportunity to receive insurance services online without all the dreaded paperwork. Digital insurance is quick, easy and cheap as technology reduces the cost of policies and significantly simplifies the procedure for receiving a settlement. For insurers, it means a substantial acceleration of business processes (which is particularly useful when settling claims) and a reduction in costs. Analysing data obtained from different sources gives the insurer a chance to know its customers better, respond faster to emerging needs, and, of course, eventually provide a higher quality of service, increasing customer loyalty.

What functional solutions are already on the market?

There is no lack of examples: there are insurers who offer insurance for flight delays, and others who insure against the unexpected cancellation of a wedding due to adverse weather conditions. The insurance company Lemonade insures personally owned and rented belongings, from smartphones to bicycles. HurricaneGuard insures against  hurricanes – the policyholder only needs to indicate the normal range of wind speed in a particular area, and in the event of unusually high wind speeds, HurricaneGuard will reimburse the policyholder the amount set at the time of insurance.

Another interesting sector is P2P or mutual insurance. These projects are great because they lack a costly superstructure in the form of an insurance company. Instead, people form mutual insurance communities on their own and receive insurance services at an agreed upon rate lower than the prices offered by ordinary insurance companies. Dynamic Insurance insures against the risk of job loss, and customers of Rega can insure their pets. VouchForMe lets friends and acquaintances vouch for each other to reduce policy premiums and Trov insures against failure, loss or theft of home appliances, gadgets and personal belongings. However, there are some issues in this sector. P2P projects still need to learn effective scoring, otherwise anyone can join the insurance community, including frauds. Another issue is the management of a growing business as the decision-making process becomes more complex. And there are still more challenges that P2P insurers will face

Testing grounds for new insurance products

I believe the most interesting testing ground for new insurance products is the cryptocurrency industry. When we first entered the market with our new product, CryptoIns, we naturally conducted in-depth research to understand the profile of our potential customers. However we faced a lack of clear existing rules in the crypto world, and the market itself turned out to be very disparate. As far as regulation is concerned, legislation for the cryptocurrency space exists in certain countries, and it aims to drive players from the grey to the white zone in order to regulate their activities through existing legislation. For example, countries are trying to move companies that provide insurance services using cryptocurrency under the existing national insurance legislation with all the preexisting requirements. What is different about the cryptocurrency space is that some countries still have not adopted national laws that apply to cryptocurrency and its operators. Therefore, it’s understandably the right time to create a niche of your own, but, of course, only if you have enough expertise, experience and a sense of adventure.

 

Owners of cryptocurrency can use it to buy various products and services or make investments in various crypto-assets across the globe, but at the same time the security of cryptocurrency is fairly fragile, considering the ever-growing risk of loss due to hacker attacks or third-party fraud. As a result, demand for insurance products in the crypto industry might be, first of all, for insurance of funds held on cryptocurrency exchanges and in personal wallets as well as insurance that hedges against the risk of volatile exchange rate fluctuations. So, what we do with CryptoIns is a completely new thing – it is the first online service for insuring cryptocurrency backed by a traditional insurance company. We insure traders’ funds on cryptocurrency exchanges, accepting insurance premiums and making claims settlements in cryptocurrency. For example, if a cryptocurrency exchange goes down and fails to come back online within 30 days, we will reimburse our customers in accordance with the insurance amounts they chose. No one else has done this to date. Using cryptocurrency to buy policies and settle claims is a very rare opportunity legally granted to a traditional insurer, therefore the availability of such a product provided by a licensed insurer is a unique event in its own right.   

In regards to hedging, there is a project on the market called DeHedge, which insures against a fall in the value of tokens. To be precise, this isn’t insurance. It’s a financial instrument that can make one’s investment more predictable. The scoring of ICO-projects is very important in this area. Cryptocurrency rates are volatile, so a tool that protects against sharp jumps could be in demand. The problem is that currently the ICO market is in a deep hibernation period if not dead entirely. Timing is everything. If this product appeared on the market a couple of years earlier, there would have been a long line of customers.

Main challenges for insurance innovators

Creating a user-friendly insurance product is not the main challenge facing potential insurers. The main challenge for any insurer is the settlement of claims online. The existing business processes of insurance companies require the customer to visit the office to process all necessary documentation. For digital insurers, it is important to develop processes and use technology so that the customer doesn’t need to  go into the office because all the necessary information can be obtained online. What other challenges might an insurer face? For example, making remote valuations of the condition of insurable assets and its value. The value of a new bicycle is obvious and can be verified with a receipt. But what if it’s three years old? What is its value then?

When we started to develop CryptoIns, we also faced some key challenges. Lack of reliable insurance statistics was the first issue. No one has ever developed a product in this sector before us, so we didn’t have insurance claims statistics or any other parameters. Thus, it’s impossible to calculate insurance rates accurately at this time. We decided to focus on the premium rates applicable in cyber risks insurance. This includes, among other types of coverage, monetary losses due to hacker attacks. The second challenge we faced was assessing the cyber security of the crypto-exchanges. Together with Group-IB, an international company that specializes in preventing cyber attacks, we have developed the world’s first scoring model for assessing the cyber security of cryptocurrency exchanges, allowing the exchanges’ clients to insure their assets. Based on the risk score, CryptoIns experts calculated insurance rates for cryptocurrency exchange users, who can now insure their accounts against cyber threats.

Time for action

Last but not least, let’s take a look at the numbers. According to projections by CryptoIns analysts, the insurance premium market in the cryptocurrency industry will reach $562 million in 2018 and grow to $7 billion by 2023. We assume an increase in the number of active cryptocurrency wallets and exchange deposits as well as an increase in the average amount of funds stored. Accordingly, the level of penetration of insurance services in the cryptocurrency space should reach 10-20 percent within five years. To provide some context for this projection, the penetration in cyber risk insurance, another new insurance sector, in the U.S.amounts to approximately 15 percent.

It’s evident that the potential for insurance products in the cryptocurrency industry is very high. Most likely, the next year will see more players and more products seeking to make the industry safer, more reliable and user-friendly for all, from casual users to professional traders, and even large funds and institutional players. As for digital insurance in general, we should also expect progress, though not too rapid, largely due to the well-known conservatism of the traditional insurance market. But it is safe to assume that all traditional insurance will eventually make the shift to digital in the immediate future and companies who are currently trying to create something new will be among the leaders of this new industry.

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