3 Technologies That Enhance Business Insurance Pricing (2024)

According to McKinsey, business insurance is a dynamic area for insurers, potentially offering a significant revenue stream for those pursuing an effective digitization strategy.

As the Figure 1 shows, companies have different business insurance requirements. For example, some companies want good communication with brokers, while others value usage-based insurance that does not require brokers. Despite such variations, getting the best price is a top priority for business insurance customers. As a result, even small price differences can have a big impact on market share and profits. 

Therefore, we would like to highlight the most important technologies that can help insurance companies lower their premium prices. These technologies either help insurers price better (via better risk assessment) or reduce their costs to offer better pricing.

Figure 1: Demands of business insurance customers

AI/ML

Insurance is the art of risk assessment. Greater computing power means more personalized pricing which can lead to a more efficient underwriting process. In this context, subfields of AI such as advanced analytics and NLP help insurers better assess risks, automate some workflows like customer service via chatbots and provide more effective fraud detection and claims processing. Consequently, by using AI/ML models, companies can lower premiums and gain a competitive advantage over their rivals. 

IoT

Computing power alone is not enough to make predictions. With more data AI/ML models can work more effectively. Interconnected smart devices such as smartphones, watches, houses, factories, etc., provide a rich source of data. This data helps insurance companies to know the external conditions and price their customer policies more accurately. Therefore, IoT reduces the risk of underpricing risks and prompts insurers to price effectively.

Blockchain/smart contracts

The digital ledger technology of blockchain can ensure the exchange of data between parties in a secure and transparent manner, which is beneficial to both insurers and businesses. In addition, blockchain enables smart contracts. These are agreements stored on a blockchain that can be enforced by code when the circumstances specified in the agreements occur. This can automate the claims processing. Thanks to telematics (i.e. interconnected smart devices), it becomes easier to verify the terms. Smart contracts thus increase efficiency in claims processing.

Figure 2: It summarizes the most influential technologies for SME insurance practices.

Further readings

Here are three more articles to help you keep up with the latest developments in the insurance sector.

• Ultimate Guide to Insurance as a Service in 2022: The latest trends in the insurance industry are forcing incumbents to rapidly digitize. Insurance as a service practices are helping incumbent insurers do so thanks to subscription-based technology support of insurtech companies. Such services help incumbents improve their underwriting, claims processing, fraud detection, and other operations.
• Ultimate Guide to Cloud Computing in the Insurance Sector: Cloud computing features help old-fashioned insurance companies adopt the latest technologies without developing hardware components. Most of the time, all it takes is a few clicks and paying a subscription to use these tools. 
• Insurance Pricing: Its Importance, Determination & New Methods: This article highlights the importance of insurance pricing and its reduction through the use of new technologies for non-commercial insurance policies.

You can check our top insurance suites and top pricing software lists to find solutions that improve your insurance pricing.

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