The digitisation of advice is often cited as one of the biggest challenges facing advisers today. But technology could have a profound effect on how insurance is sold.

Lessons from other industries on data science and machine learning applications suggest there is a strong argument that those seeking to 'own' the advice function need to pursue data. 

The current pandemic is doing more than simply disrupting business as usual for almost all businesses – it is also providing opportunity for innovation and the deepening of existing trends, such as virtual communications and online collaboration.

In insurance, a similar pattern is developing with “insurtechs” or small companies entering the insurance sector and hoping to take advantage of new technologies to provide coverage to an increasingly digitally savvy customer base. For these disrupters, fintech has created the opportunity for innovation, often in partnership with incumbent market leaders.

While insurtechs have not yet made deep inroads into the sector, Simon O’Dell, Co-founder of industry body Insurtech Australia, says he is seeing two main trends: insurance distribution solutions that directly aid the financial adviser through platform technology; and solutions that automate parts of the adviser function through data science and machine learning.

This potentially means not only instant digital transactions supported seamlessly across digital channels but much richer data on each segment of the retail market to assist the financial adviser.

O’Dell says it remains to be seen whether the future’s path is toward technology enabling human-derived advice or humans enabling technology-derived advice. But regardless, staying abreast and engaged with technological advances in the delivery of advice will ensure that an adviser can stay relevant.

He says there is plenty of scope for advisers to be more efficient as the user experience for onboarding an insurance client is often cumbersome and doesn’t always meet with consumer expectation. As the risk profile, needs analysis and onboarding tools become digital, collaborative and connected into third-party data sources, so the adviser’s value to the consumer improves.

Why data collection is key

As an example, O’Dell cites home-grown insurtech start-ups using integrated data capture and client engagement services to redefine the adviser/client relationship. Some are finding that young, digitally savvy segments are less company-loyal and tend to treat financial products and services, including insurance policies, as interchangeable as long as they fulfil personal needs. Examples include using digital channels to receive an insurance quote or submit a claim are considered preferable to a branch visit or phone call.

According to McKinsey & Company data, insurtechs are mostly active in the distribution (37 percent) and pricing (23 percent) parts of the insurance value chain. This means making products available to customers at their convenience, facilitating product comparison, and simplifying the purchasing process.

O’Dell adds that local regulators have been proactive in supporting innovation, with Australia, Singapore and the UK considered frontrunners in allowing insurtechs to test their innovative business plans on specific client segments. Initiatives like the ASIC Innovation Hub and Digital Finance Advisory Panel are evidence that regulators are keeping well abreast of insurtech trends.

“With the right data inputs, data science models can understand a client better than they can understand themselves, and such produce insurance outcomes that completely align with their best interests,” he says.

“It is only now, as the capability of data science begins to surpass the capability of humans that we compare the two. Machine learning and AI will not be compared to human capability in the years to come.”

Like fintechs, insurtechs are extending innovation throughout the sector, offering a competitive threat to incumbents but also potentially valuable opportunities for partnering in an ever-changing environment.