Global Insurance Industry boomed in the recent decade with an average annual growth rate of 4.5%. The current market capitalisation is estimated to be 5.9 trillion US dollars. Despite potential risks and threats similar to those in Capital Market, the Industry is firmly established and strictly regulated in order to preserve interests and rights of customers. Risks are directly associated with business processes and factors that manifest in form of losses to either of the parties in an Insurance Contract. Proactive Risk Assessment and Management are of foremost importance for smooth functioning and sustenance of the industry.
Underinsurance refers to an insufficient insurance policy, which does not offer complete financial redemption when claimed. It is an unnecessary risk which is subtle and often induced in an agreement. The cause can be rooted in under evaluation of the asset’s worth when contracts are signed. When such policies are claimed they lead to vigorous disagreement between the insurer and insured. Disagreements often lead to disruption of customer faith in the organisation and eventual attrition.
There is no standard definition to underinsurance. It’s better understood around instances which invoke it. Some of them are stated below:
- An individual is underinsured by an insurer, if for the same premium another insurer is offering greater redemption amount
- An individual has under valued his asset in the agreement
- The premium does not account for upgraded assets
- Opting for a low recovery policy at lower premium sum
The recent blast in Beirut is estimated to have destructed properties worth 14 billion US dollars. Its complete recovery is impossible by any of the Insurance Companies.
Insurtech: Aid for Underinsurance
Decision Making based on Data Driven Technologies such as Analytics, ML and AI in Banking sector led to the Financial Technical (FinTech) revolution. The same revolution in the Insurance Industry is termed as InsureTech or Insurance Technology.
InsurTech is helping underwriters to properly assess assets with the help of technologies and hence eliminating risks of Underinsurance. A good Business Process Management(BPM) for the insurance industry can help address underinsurance through workflows that aid policy renewals, claims assessment and help identify opportunities for cross and up selling, aided through ML and analytics. Other potential InsurTech solutions are IoT based Tracking and Prediction, Automating Asset Evaluation etc.