Insurtech can bring insurance protection to the poor and vulnerable

Arup Kumar Chatterjee

The global fintech boom has spread to the insurance industry, as new, disruptive "insurtech" companies rapidly innovate business models that are challenging industry norms.

Insurtech uses state-of-the-art technologies, including big data, the internet of things, blockchain, machine learning, and cloud computing to improve insurance products, create new ones, and reshape the industry.

Insurtech solutions can bring more people into the financial system, accelerating social and economic development. The obstacles that prevent most of the population from including insurance in their risk management toolbox are precisely the obstacles that insurtech aims to overcome.

These obstacles include a lack of understanding of insurance, distrust of insurers, frustration with cumbersome processes for claims management and products that don't fit their needs.

Insurtech can also enhance the financial resilience of communities and individuals to climate change and natural hazards, aging, rising healthcare costs, and crop losses.

These technologies can help governments estimate and disclose the potential magnitude of contingent liabilities and limit or reduce them through efficient risk-sharing and transfer instruments. As a result, it will aid rating agencies and institutional investors and in principle could lead to lower borrowing costs by the government.

Insurtech has helped insurers remain relevant amid a global digital transformation by allowing them to focus on lowering costs and increasing efficiency. Integrating products and improving distribution models has helped them focus on profitability.

It has also enhanced customer experience by filling gaps between a prospect's needs and current company capabilities with more flexible, customer-centric, and tailored product offerings.

As insured losses from natural catastrophes rise substantially, digital and remote sensing technology solutions—satellite data, remote sensors, geo-data, ESG models, and water levels—can help insurance companies leverage and embed the most-accurate real-time climate-risk data into their models.

Insurers can then use advanced data analytics to interpret this data and generate insights into the likelihood of a climate event or its potential impact.

Emerging markets have significant protection gaps as growth in savings, life and health insurance, and pension coverage has lagged behind economic and wage growth. At the same time, catastrophes are becoming more frequent and intense and hardly anyone feels the necessity of purchasing cyber insurance coverage.

There is a dire need to mitigate the losses arising from such unforeseen events to decrease mortality, increase financial resilience and ensure economic stability.


The protection gap opens a new world of possibilities for insurtech startups to develop insurance products grounded in technology. Price is the main factor driving decisions to buy insurance, and insurtech innovators can produce efficiencies that lower prices.

In addition, more flexible policies with shorter terms should be more attractive in emerging markets, where a great deal of work is informal. These products may be more attractive to younger people, informal workers, and gig economy workers.

There is a massive demand for microinsurance, and insurtech can extend the umbrella of protection to underserved areas with 100 per cent digital products.

However, perception is not always reality. Insurtech businesses joining the digital scramble must recognise that insurance is a complex business that relies on expertise in risk assessment, actuarial forecasting, capital models, complicated and multi-layered contracts, and astute claims handling.

In addition, all companies offering insurance products, whether large incumbent firms or smaller insurtech startups, must comply with regulatory requirements. Thus, insurtech companies must remain focused on the functions and metrics fundamental to the business to achieve good results.

Insurers should be mindful of the proverbial iceberg in pursuing their ambition to modernise, as some risks lurk below the surface and are not tied to the innovation itself. As a result, firms should not focus so much on digital initiatives that they lose sight of the basics of the business: underwriting, claims, actuarial, finance, and customer service.

Insurers actively participating in digital transformation have used various approaches for staying current and competitive—innovation labs, insurtech accelerators with external partners, investments in and purchases of insurtech companies.

Advances in technology shape policyholders' expectations. To truly harness the potential of new data-based technology, insurers must earn client and consumer trust, yet what constitutes digital trust is still taking shape. Therefore, they must balance expanding the digital footprint with ensuring that data is handled transparently and responsibly and consumer interests are adequately protected.

While customers might be willing to buy car coverage or travel insurance from a bot, during a tragedy they may prefer an experienced human agent as they support their near and dear ones. The human touch remains unique.

Finding this sweet spot between automation and the human factor will hinge on trust. Automation and people must complement each other. While machines decide as they are programmed, humans act as per their conscience. The former cannot take responsibility; they are not accountable. Accountability must stay with real people so that insurtech can flourish.

As worrisome challenges unsettle global economies—from inflation, supply chain disruptions, geopolitical crises, labour shortages, changing consumer habits, to climate risk—insurtech can help future-proof businesses.

The author is principal financial sector specialist at the sustainable development and climate change department of the Asian Development Bank