InsurTechs and Smart Contracts – A look into the future of the insurance industry
Changing rates online, consultation per video chat, and uploading a quick picture in case of damage to the car. Digitalization has already arrived in the supposedly old-fashioned insurance world. So-called InsurTechs are turning the insurance industry upside down.
These changes are mainly driven by the demands of new target groups. Young customers today expect competent consulting, fast problem solving, and a simple implementation of all insurance matters – and all that online if possible. Just in Q2 2017, a record total of US$ 985 million was invested in new technologies for the insurance industry.
What are InsurTechs anyway?
The term InsurTech is composed of the English words insurance and technology. It basically describes insurance services that use digital technologies. The word is often used synonymously for digital start-ups in the industry, which can mainly be divided into the following three categories:
There are the start-ups that offer their own insurance policies. At Ottonova, for instance, you can take out private health insurance online and Flypper began offering with liability, home owner's, and accident insurance in 2018. Other providers, like Appsichern, insures short-term and situation-based risks: missing a flight, rental car coverage, or a mountain bike tour. The supplementary insurance only covers the holder for the specified period of time. There are also start-ups that are engaged in digital sales. This includes online insurance brokers and comparison portals. The third category of start-ups provides new technologies to established insurance companies, for instance a 24/7 chat room. This allows customers to ask questions at any time which the system answers automatically with the help of chat bots and AI. 
Especially interesting for insurances: smart contracts
So-called smart contracts make it even easier to take out an insurance policy and payments in case of damages. With these digital contracts, a farmer for instance could insure himself against a harvest loss. Sensors on the fields measure precipitation volumes in a certain period and send the data to the blockchain. It stores and updates the data in a distributed manner on many different computers at the same time. In contrast to storage on a single computer, this makes the information transparent and forgery-proof. Why? Because, instead of hacking one single server, one now would have to hack each individual computer in the blockchain to falsify the information. If it does not rain for several months, the data shows this beyond a doubt and the insurance pays the farmer for the damages without him having to report it. This also saves the cost for expert opinions and court dates. Other areas of application could be for hail or water damage or increased transportation costs on rainy days.
Form a technical point of view, smart contracts are easy to implement. However, they are still offered only very rarely. An example is the blockchain insurance for late flights. The insurance policy is connected with a world-wide air traffic data base per blockchain. If the flight is more than two hours late, the passenger does not have to contact the airline or an online consumer portal. He is compensated completely automatically and without having to report the damage.
Cooperation instead of confrontation
At the start of the digitalization of the insurance industry, all signs pointed to confrontation. Many start-ups announced confidently that they would completely change the market and upend established insurance companies. Since then, everyone has taken a softer stance and is looking for cooperation instead of confrontation. One reason may be that the insurance industry is very complex is and it is difficult to get customers excited. Many start-ups simply lack insurance know-how to be able to establish themselves successfully. In addition, the major insurance companies have recognized the potential of digitalization and greatly developed their activities in this area. Many companies now actively seek contact with innovative start-ups and support the InsurTech scene financially.
Despite digitalization – personal consultation is a must
No doubt, digital insurance technologies are conquering the entire industry. Classic insurance products are expanded by digital components and completely new products arise at the same time. Not only established companies and start-ups profit from this, but especially customers. Nonetheless, personal consultation meetings remain the most important factor when concluding insurances. A survey last year showed that it is very important to more than 70 % of German policy holders.