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As technology has reshaped the world in recent years, it’s also become an integral part of the financial industry. The emergence of financial technology companies, or fintech for short, has changed the way we spend money, take out loans, and track our budgets.

One industry jumping into the tech arena is insurance. The rise of big data makes it so that artificial intelligence (AI) and machine learning will help insurers manage risks better while creating custom insurance products that are fairly priced and available to more consumers. Insurtech isn’t as widely discussed as fintech, but it’s another way technology is improving the world as we know it. Here are three big ways technology is reshaping the insurance industry in 2021 and beyond.

  1. Artificial intelligence to write smarter policies

The rise of big data has opened up a world of possibilities when it comes to technology. As data storage becomes cheaper, companies have the ability to pull insights from a treasure trove of data, making business more efficient in the process. Insurers are able to leverage thousands of data points to write better policies. From the insurers’ perspective, managing risk is of the utmost importance. With prudent risk management, insurers are able to better assess an individual’s risk and provide more fairly priced insurance policies.

In fact, some companies that have gone public in recent years are almost entirely based on using big data and AI to write policies. Lemonade (NYSE:LMND) is one such company that has made a splash, using big data and AI on the back end to quickly analyze risk, underwrite policies, and deal with insurance claims. By leveraging AI, Lemonade is able to appeal to the younger generation, which seeks out mobile-first experiences through a fast and user-friendly app.

  1. Telematics to price policies

More insurance companies are pricing policies based on behavior rather than demographics. Auto insurers in particular are making use of vehicle monitoring technology known as telematics. Progressive has been ahead of the curve on telematics since 2010. The insurer is well known for its Snapshot product, which allows the insurer to more efficiently price a customer’s auto coverage based on driving habits.

Root is another company with ambitious goals for using telematics to price car insurance. The company says that it prices customer policies entirely based on behavioral data, and it uses machine learning on a wealth of data from a user’s phone to price policies, using the magnetometer, accelerometer, gyroscope, and other sensors to detect driving behaviors, like hard braking, abrupt turning, and distracted driving. Its ultimate goal is to eliminate the use of credit scores in insurance, and base prices entirely on behavioral driving data, not demographics.

  1. Customizable insurance products

Customers want insurance coverage that caters to them, and big data and smart devices make this possible. Usage-based coverage is one type of insurance product that has increased in popularity in recent years. According to a survey by TransUnion, 61% of drivers said that they would allow their insurance carrier to collect real-time data about driving habits and mileage if it could lower their premiums. It’s shouldn’t be too surprising that some customers prefer usage-based coverage given last year’s drastic drop in miles driven due to coronavirus-related shutdowns. Most big auto insurers like Progressive, Allstate, and Nationwide offer usage-based coverage options now, while Root’s entire business model is focused on maximizing its pricing power by using machine learning on the telematics data it collects via usage-based coverage.

Property insurance is another area using big data to create customizable, niche products. Palomar has created niche insurance products — like Hawaiian hurricane insurance or residential earthquake insurance — thanks to big data. The company uses its price modeling techniques to analyze risks down to ZIP code level to price rates, as opposed to using broad territorial zones, allowing it to better pinpoint risks and underwrite profitable policies.

Don’t ignore insurtech

The integration of technology and insurance will play an increasingly important part of our lives. The industry is massive — with property, casualty, and life insurance premiums amounting to $5 trillion globally, and 11% of GDP in the United States — and ripe for disruption.

Big data will enhance risk mitigation as insurance companies provide customers with better catered products at fair prices, and serve a broader range of customers. There are a number of companies, including early mover Progressive and newer companies like Lemonade, Root, and Palomar, that are pushing the boundaries of innovation and are worth watching in the coming years as the industry undergoes a massive transformation.