The rapid rise of InsurTech is transforming the insurance industry, driving innovation in products, processes, and business models. The January 2025 special issue of The Geneva Papers on Risk and Insurance, edited by Alexander Braun and Alex (Ruo) Jia, explores how InsurTech, including digital technologies like big data, IoT, and blockchain, create value for insurers and their customers.
Investing in innovation
In the article Technology investment and insurer efficiency, Faith Roberts Neale et al. distinguish between two types of technology spending: expenses (e.g. research, development, and innovation) and assets (e.g. software and hardware). The study finds that insurers that spend more on technology classified as expenses tend to see improved efficiency the following year, while investments in technology classified as assets can reduce efficiency in the short term. The findings suggest that pursuing innovation-focused investments is more beneficial than upgrading operational technology.
Feiyan Yang et al. examine whether property insurance encourages corporate innovation in Does property insurance promote corporate innovation? Evidence from China. The results show that property insurance reduces financial uncertainty by protecting firms from unexpected cash flow disruptions, such as those caused by natural disasters or accidents. This security enables companies to take more risks and invest in research and development. Property insurance also helps firms access financing more easily, reducing financial constraints that could otherwise hinder innovation. The positive impact of insurance on innovation is especially strong for non-state-owned firms, high-tech enterprises, and companies led by innovative managers.
In InsurTech strategies: a comparison of incumbent insurance firms with new entrants, Christopher P. Holland compares how established insurance companies and new market entrants use InsurTech. While new companies use technology to create entirely new products and business models, traditional insurers mainly use it to improve existing services and maintain market position. New entrants focus on AI, big data, and automation to develop innovative insurance products, such as pay-as-you-go coverage and AI-powered claims processing. In contrast, large insurers tend to enhance current processes, such as automating policy management and fraud detection. However, some established firms are adopting disruptive innovations, like telematics-based car insurance.
The study by Ruiyun Wanyan et al., Digital transformation and total factor productivity in insurance companies: a catalyst or inhibitor?, examines how digital transformation affects insurers’ productivity. At first, productivity declines due to high initial costs and disruptions. Later, however, as digital transformation progresses, productivity improves. Most insurance companies are still in the early stages of digital transformation and struggle with efficiency. The study highlights the need for careful planning and resource allocation to maximise the advantages of digital transformation.
InsurTech-enabled business models
In Risk attitude toward on-demand insurance: an experimental study, Hsiaoyin Chang and Hato Schmeiser explore on-demand insurance, which allows consumers to buy short-term coverage via smartphones. While this flexibility is appealing, the study finds that people tend to overpay for on-demand insurance due to two psychological biases: miscalculation of risk (overestimating the chance of loss) and myopic loss aversion (focusing too much on short-term risks). The article finds that participants were more likely to choose expensive, short-term insurance, even when it wasn’t the best financial choice. The findings highlight potential pitfalls in the growing market for on-demand insurance.
Existing blockchain-based charity models struggle with issues like verifying uploaded information, resolving disputes, legal barriers, and low public engagement. The article by Cheng Yang et al., A novel blockchain-based charitable model combined with insurance, proposes a new blockchain-based charity model that integrates an insurance mechanism to improve transparency, efficiency, and public trust. By using a consortium blockchain with a semi-decentralised architecture, the model balances security, accountability, and decentralisation while enabling democratic oversight. Smart contracts automate insurance claims, ensuring fair and efficient dispute resolution. This system provides extra protection for donors and recipients by guaranteeing that funds are used as intended.
Improving insurance operations
The article by Xin Che, Investment in big data analytics and loss reserve accuracy: evidence from the U.S. property-liability insurance industry, examines how investing in big data analytics affects loss reserve accuracy in the US property-liability insurance industry. The research finds that higher investment in big data analytics leads to more precise loss reserve estimates, reducing both over-reserving and under-reserving behaviour. The study highlights the role of technology in enhancing financial stability and operational efficiency, and the strategic value of big data in improving risk assessment, promoting more accurate financial planning, and strengthening overall insurance operations.
IoT devices can help insurance companies track individuals' health and lifestyle habits in real time, allowing for more accurate risk assessment. The article by Yen-Chih Chen and Xiaoyi Li, The impact of health-promoting efforts by older individuals on the design of long-term care insurance: the application of IoT technology, explores how IoT devices could impact long-term care insurance by tracking individuals’ health and lifestyle habits. Regular exercise and good sleep quality are found to lower the need for long-term care, while regular health check-ups do not. The study suggests that IoT data could be used to offer premium discounts, create more personalised policies, and encourage healthier lifestyles. Offering cross-industry rewards, such as health products, could further incentivise policyholders.
Access the issue at SpringerLink (subscription required).
