The insurance sector belongs to mature and highly competitive industries. The vast array of market players operates inside a low-growth environment, and there is a great risk of a race to the bottom on rates. Moreover, this risk is attributable to the changes of distribution models and new technologies. Still, the cost base remains too high with numerous manual processes demanding multiple handling.

The business models that have served the insurance industry for years require a complete overhaul these days. Insurers are perfectly aware of the positive correlation between innovation and competitiveness:

  • **Digital Differentiation: **With the help of digital platforms insurers can focus on digital layer customization. Customer portals help to keep the customer at the core of the business.

  • **Data & Analytics: **The major challenge is to be able to convert big data into insights, as data amount has grown.

  • **Innovation: **1-5% of IT budgets are dedicated to R&D. There should be a bilateral approach to innovation: leveraging internal innovation and strategic partnerships with InsurTech.

  • **InsurTech: **There is a robust community of InsurTech startups[1] that offers a different approach to the very business model and underlying technology in the insurance industry.

However, the historical conservatism of the insurance industry runs counter to the frantic pace of technological development and as a result, fails to correspond to the current problems.

Pressing issues of auto insurance

Insurance fraud stands out from all the challenges as it is destructive for insurance companies on a global scale. The loss amounts are astonishing. According to Aviva fraud investigation[2], 9 out of 10 insurance claims involve fraud. Insurers have no other option other than to pass these losses to clients, and this leads directly to higher car insurance costs. The problem of insurance fraud is complemented by present-day insurance systems which appear to be arcane due to the inability to measure the risk.

Apart from being archaic and plagued with red tape, the insurance industry has perceived clients in a generalized manner. Drivers are different in many aspects, but insurance has ignored their individuality. Behavioral patterns[3] and accident risk are directly dependent on the driving style, weather conditions, pavement quality, and other parameters which are interconnected and have to be considered.

There is an unyielding need to create a community of safe drivers and promote the idea of safe driving in society. In other words, there have to be incentive mechanisms to encourage people to improve their driving culture. The insurance industry requires a multi-targeted tech product, providing a personalized approach to every driver, minimizing the possibility of fraud of any kind, and motivating road safety culture improvement. But the innovative approach cannot do without an appropriate regulatory framework.

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