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What it will take for insurance technology to flourish and survive in 2023

The digital revolution of the insurance sector, sparked by the pandemic, is here to stay, as the global insurtech market is projected to reach $10.42 billion this year, up from $8.07 billion in 2021. As a result of supply chain disruptions, geopolitical crises, workforce shortages, and shifting consumer preferences, the cost of doing business has increased dramatically, putting insurance firms in a race to stay relevant while cutting expenses.

Therefore, insurance companies are increasing their spending on digital technology and using AI and automation methods across their operations. Insurers may now save money and improve efficiency thanks to these technological advancements.

However, it may be challenging to keep up with the rate at which this digital revolution is occurring and decide which technologies to implement. Let’s look forward to 2023 and see what impact technology will have on the insurance sector.

According to the World Property and Casualty Insurance Report from Capgemini and Efma, just 8% of insurers are sufficiently planning for the effects of climate change. The research said, “Insured losses from natural disasters have climbed 250% in the previous 30 years,” and it went on to specify that “perils like wildfires and storms, viewed as especially influenced by climate change, have caused an even quicker spike in insured losses.”

Risk avoidance and risk management need to be balanced for climate resilience. Technology solutions that help businesses use and incorporate climate-risk data into their models are in high demand and are expected to grow in popularity. More than half of all businesses are currently using innovative data sources including satellite and remote sensor readings, geo-data, ESG models, and water levels to assess the most current and comprehensive risk assessments possible. Then, machine learning (ML) may analyse the data to draw conclusions about the probability of a climatic event or the possible effect of an event.

Insurers can now more precisely assess the scope of climate-related calamities like floods thanks to developments in data analytics. A growing number of people are turning to parametric insurance as a way to protect themselves against these dangers. Parametric insurance analyses all the facts around the possibility of a certain climatic event to compute the cost of coverage, as opposed to making reimbursements based on the value and actual damage associated with an asset. As long as the criteria are determined as near as feasible to any loss that may occur, this method may be a more cost-effective option for risk transfer.

The era of telematics and usage-based insurance.

Telematics systems collect information about a vehicle’s location and how it is being driven. One of its many uses is to immediately notify the vehicle’s owner’s insurance company of an accident. Repair shops, for example, may be provided access to telemetry data in order to generate estimates and place parts orders. The time it takes to process claims for damage repairs might be cut significantly.

The driving patterns of policyholders may also be gleaned from telematics data and used by insurance. This is crucial information for usage-based insurance (UBI), which bases premiums on actual consumption rather than estimates. There may be 20% of all vehicle insurance purchased in 2024 that is UBI-based, according to Forrester Research.

Pay-as-you-drive is a common kind of UBI that lets drivers to pay for their transportation costs depending on the number of miles they travel. It’s a better deal for low-mileage drivers, and it may be used to get people to cut down on their car usage. To lessen their effect on the environment or the likelihood of accidents, as examples.