Navigating the dual imperatives of InsurTech: Innovation and risk management

The Indian insurance industry is currently undergoing a significant transformation with InsurTech playing a pivotal role in driving innovation to make insurance more accessible, personalized, and efficient for customers. What was once a paper-heavy, trust-driven business is being reshaped by Artificial Intelligence, Machine learning, Data analytics, APIs and automation. According to a study by IMARC, the India Insurtech market size reached $0.90 billion in 2024. It projects the market to reach USD 11.90 Billion by 2033, exhibiting a growth rate (CAGR) of 29.10% during 2025-2033.

Through AI, InsurTech companies are upending the insurance industry with revolutionary approaches to simplify customer onboarding, undertake risk assessments, develop innovative products, drive operational efficiency, process claims in real-time; all leveraging data analytics as a strong, scalable and sustainable foundation. It is also creating opportunities for insurers to reach and engage customers in new ways, including through interactive mobile applications and online portals. A Deloitte study says, “Insurers that integrate multimodal capabilities using AI and advanced analytics could generate potential savings of 20% to 40%, depending on the implementation, type of insurance, and sophistication of fraud detection systems.”

However, there is a flip side to innovation as well. While it is propelling the industry forward, it also introduces a range of risks including cyber threats, regulatory complexities, data privacy and operational vulnerabilities. These challenges require robust risk management encompassing a dynamic control environment and vigilant oversight leveraging risk analytics. In this dynamic landscape of InsurTech, bringing harmony between innovation and ensuring robust risk management has become crucial. 

Additionally, it is equally significant to recognize that risk management can no longer be viewed as the sole mandate of risk and compliance functions. It must be embedded as a shared ethos across the organisation, where every stakeholder plays an active role in anticipating and managing risks as part of driving responsible innovation in their day-to-day activities.

Understanding the Evolving Risk Landscape

1. AI-Related Risks: While AI is reshaping insurance operations, it is also attracting risks such as algorithmic bias, deepfake-enabled fraud, and data privacy concerns. This requires a responsible AI governance mechanism.
2. Cybersecurity Risks: With digitization and emerging technologies, it’s not surprising that cyberthreats have also evolved, with threat vectors becoming increasingly sophisticated. Across industries especially financial sector, a surge in cyber threats such as ransomware, phishing, and data breaches is being observed. This makes proactive cybersecurity strategies indispensable.
3. Operational Risks: The InsurTech ecosystem relies extensively on digital infrastructure and third-party vendors for cloud, analytics, APIs, and distribution. Each integration adds value however also creates operational vulnerabilities by providing potential entry points for cyberattacks, thus, requiring an effective and ongoing operational risk management as part of business-as-usual activities.
4. Consumer Trust Risks: Concerns around opaque AI decisions, data misuse, and perceived unfair treatment can undermine customer confidence. It is critical to prioritize transparency, fairness, and data protection to build long-standing relationships.

Embedding Risk Management into the Innovation Lifecycle

To understand the relationship between innovation and risk management in InsurTech, let’ consider a simple example of driving a self-driving or autonomous car. While the innovation of the engine and autopilot provides efficiency, speed, and intelligence to the car, without sensors, brakes, and safety protocols, even the smartest car can crash. Risk management is the system of safeguards: it is the sensors that detect danger, the brakes that prevent collisions, and the software updates that keep everything running safely. And just like every part of the vehicle contributes to a safe journey, every team must play a role in managing risk because innovation means nothing if policyholders don’t feel protected.

A "risk-by-design" approach is imperative to ensure that innovation doesn't outpace risk and controls. This involves integrating risk assessments at every stage of product, process and technology development. Such measures not only safeguard the organization but also foster a culture where risk awareness is ingrained across all departments—from sales, operations and product development to Compliance and IT.

Regulatory Compliance

Indian regulatory landscape is also evolving in tandem with the technological advancements. Recently, the Insurance Regulatory and Development Authority of India (IRDAI) has introduced the Regulatory Sandbox Regulations, 2025, facilitating innovation while ensuring policyholder protection. Additionally, the Digital Personal Data Protection (DPDP) Act, 2023, mandates stringent data protection measures, compelling insurers to reassess their data handling practices. 

These regulations make it clear that the innovation landscape demands risk management and compliance which is agile, forward-looking strategies built on self-regulation, continuous monitoring, and active industry collaboration.

Looking Ahead: Embracing Emerging Technologies with Caution

Emerging technologies like generative AI, ML, IoT etc. present new opportunities and associated risks. Proactive risk management strategies, including continuous monitoring and adaptive controls, are essential to navigate these uncharted territories.

The future of insurance will belong to those who can integrate risk thinking into the core of innovation. This means embracing technological advancements that are not only intelligent but also ethical, secure, and transparent. By embedding risk awareness across every touchpoint—be it product, technology, or customer engagement—we can build an industry that is not only digitally progressive, but also resilient, trusted, and truly customer-centric.

Gaurav Banka

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Gaurav Banka is Chief Risk Officer at Aviva India.