Digital payments: An ally for the insurance industry
February 08, 2021
4 min read
It was one of the most analogous sectors that exist, until technology came to revolutionize its way of functioning. The insurance industry has experienced major transformations in recent years, mainly due to the emergence of insurtech: companies that mix insurance with technology, offering more complete and agile services.
In fact, the World Insurance Report 2020 mentions the “new trust equation” for insurance, which are two key aspects in customer behavior in the before conversion process: Comments and reviews of other users, and an increasing preference for non-traditional insurers, such as insurtech.
Why it is relevant?
Globally, insurance represents a significant portion of the economy, taking 6.28% of the total share. Globally, this industry is valued in USD 4.5 trillion. North America and Europe are among the biggest players. In the first case, insurance consumption per person reaches USD 4.072 per year. In Latin America, instead, it only reaches the amount of USD 257 annually.
But, despite the low amount in comparison to other parts of the continent, technology-based insurance is a sector that is advancing at a firm step in the region. According to Finnovista’s Fintech Radar 2018, there has been a 50% growth in the number of insurance-related startups that operate in Latin America. The main markets are Argentina, Brazil, Chile, Colombia, Mexico and Peru.
During 2020, 377 agreements and investments of USD 7.100 million were generated worldwide, a record figure for the industry, according to the Quarterly Report of Insurtech, drafted by Willis Towers Watson. Financing increased by 12% in respect to 2019, and the volume of operations increased by 20%.
Which ones will be the winners?
There are different types of insurtechs, between the approximate 800 that exist worldwide. Some of the most known models are insurers, which by means of technology, measure the kilometers traveled, and charge the value of their vehicle policy according to that, or insurance for helpers in risky jobs, which are in line with the exact hours in which the person works.
Beyond these examples, there are three categories in which insurtechs are divided:
- Enabler: These are the ones that provide B2B solutions to accelerate or improve some part of the value chain of an already existing provider. For example, an insurtech that uses data algorithms to improve processes, or that delivers a digital platform to help sellers to identify risks more accurately.
- Partner: These are those that go to the market in a joint way with some traditional insurer. The insurtech provides the technology, and the insurer provides the product, but they sell it jointly.
- Challenger: Refers to insurtechs that obtain an official license, and operate alone. They assume the risk, and compete with traditional insurers. Generally, they work with talent coming from the industry, or purchase insurance companies that already have a license.
The spending in technology of the insurance industry is growing rapidly, allocating USD 205 billion in 2019 only for this item. This can be because 90% of traditional insurance businessmen fear losing participation, due to the appearance of insurtechs.
The importance of digital payments
Several studies have shown that payments are a relevant point to improve for insurance companies, where insurtechs have an advantage because they have more agile and innovative technology that goes hand in hand with their business models.
A Strategy Meets Action event, revealed that 64% of its insurance industry attendees are seeking to reduce their dependence on checks, and 53% aim to reduce internal processes costs. With the pandemic, the vast majority assured that they made changes in their plans for the next three years, because the need to have digital payments became the most urgent priority.
According to Statista, the insurance industry risks losing USD 203 billion from now until the pandemic ends, if it does not reduce operating costs, if it does not increase customer withholding, and the operating cost associated with check payments is not reduced (between 4 and 20 dollars per each processed check).
Customers also agree: In a VPay and Engine Insights poll, more than 95% of the respondents said that payment ease and transaction speed impact how satisfied they feel with their insurance provider.
More risk, more policies
It is proven that, in times of crisis, insurance demand increases. In the case of the Covid-19 pandemic, requests for international health insurance policies were increased by 235% according to Allianz Care.
With high demand and the economic risks of non-digitalization, the path insurers must take not to remain behind is clear. There, digital payments have the priority, since it is one of the best tools to increase customer satisfaction and retention.