Insurtech in 2017: making insurance great again
There are many reasons to be excited about insurtech in 2017, believes Oisin Merrins, editor at FinTech Futures Series (Banking Technology’s sister company).
In these tumultuous times, the relative calm of the insurance industry may give the impression that all is ticking along as usual. That impression would be wrong.
2017 looks set to be another exciting year as InsurTech continues its mission to “make insurance great again”. The digital and business strategies of insurers are in closer alignment and insurtech companies continue to accelerate the industry’s transformation, connecting the old and new worlds. Partnerships between the big and small continue to multiply and the benefits of these symbiotic relationships begin to be felt, with some insurers on the road to cultural change and some insurtechs on the route to scale.
We take a look at some of the trends that will affect the industry over the coming months.
Insurtech will put customer engagement front and centre
While digitisation, spurred on by the growth of insurtech, can deliver efficiencies in how insurers operate, it can also pave the way for a renewed emphasis on engaging the customer. Those insurers that get it right will put customer-centricity, customer experience, and value-added services at the core of what they do, harnessing the potential of insurtech solutions that provide frictionless, seamless experiences across areas such as claims and policy management.
It will only be through innovation guided by the principles of customer engagement that progress will be made in tackling those famously low levels of trust and satisfaction that plague the industry.
Insurtechs look to kickstart IoT with advanced analytics
There has been plenty of talk in recent years of how the Internet of Things (IoT) will fundamentally transform the insurance industry as a whole. But the “data-driven insurer” of the future, using rich and real-time information to meet evolving customer needs and stay ahead of the competition, has yet to materialise.
The reason for this is pretty simple: burdened by legacy, insurers have not risen to the challenge of recording and analysing the enormous quantities of structured and unstructured data to derive reliable, actionable insights.
However, automation and artificial intelligence (AI) can provide carriers with more advanced processing capabilities and analytical tools. Insurers serious about realising the IoT’s potential can look to the many insurtechs offering new ways of exploiting data through the use of AI.
Silencing the sceptics – blockchain begins to deliver
As in fintech, insurtech has seen the arrival of many single point solutions that chip away at the incumbents’ value chain. Yet as a platform for digitisation itself, distributed ledger technology (DLT) can in fact be leveraged to innovate across all functions of the industry.
Insurers are evidently beginning to take DLT seriously, encouraged by its potential use in claims automation, and we can expect some tangible developments on this front over the coming months. Of particular interest will be the outcome of the B3i Initiative (the consortium launched late 2016 by Aegon, Allianz, Munich Re, Swiss Re, and Zurich), insurer-led developments in the wholesale and commercial markets, and the performance of insurtechs providing DLT solutions to the industry, such as ChainThat.
Not quite Skynet, but it’ll do – automating complex processes with AI
The automation of repetitive, low-input business processes is nothing new as far as the insurance industry is concerned. Excitement is building, however, around the number of capabilities gathered under the title of AI that could automate more complex processes, for example, machine learning, natural language processing, and computer vision.
Intelligent systems will be instrumental in unlocking the IoT’s potential, as mentioned above, but insurers are also exploring how to automate customer interaction, fraud detection, claims processing, and property assessment using drones. One area that will see a lot of AI activity in the coming months will be customer engagement, with chatbots employed to enhance customer experience during purchase and claims processes.
What next? Insurtech takes aim at commercial and specialty
While the majority of insurtech growth has to date been around personal lines, we can look forward to more activity in commercial and specialty lines in the coming months.
It should be noted that there are greater barriers to entry here (explaining the small number of dedicated insurtech players amongst the first wave), perhaps the most important being the relative complexity start-ups encounter in comparison to personal lines.
However, there are considerable opportunities for partnerships that leverage the scale and expertise of incumbents and the agility of insurtechs. Commercial insurance offers fertile ground for the use of connected devices to develop new risk models – with a rising demand for smart sensors in commercial premises being one example – and engage in more proactive risk management.
Giving the people what they want – new markets, new products
Innovation across the financial services sector has in part been driven by the emergence of start-ups that provide products that cater to the evolving behaviours, lifestyles and demands of customers.
Microinsurance will soon begin to take hold, with episodic and usage-based products responding to the on-demand, anytime, anywhere expectations of digital consumers.
We will see more insurtechs come to market offering niche products, whether they do so as carrier or broker.
Greater segmentation of the market will proceed at the same time as new markets themselves open up spaces for challengers to emerge: the sharing economy has fostered a number of insurance needs that insurtechs are moving to address, for example, Slice launching an insurance product for users of homesharing services such as AirBnB.
Another area that is likely to see much activity is cyber insurance, especially given the uncertainty amongst insurers around how to best underwrite cyber risk, with the opportunity for an insurtech to enter and capture market share being particularly compelling.
Partnership, partnership, partnership – it’s the industry’s future
Value chain disaggregation is leading to rapid growth in InsurTech partnership opportunities, and it is partnership that will be integral to the success of both the insurtech sector and the insurance industry’s digital transformation.
The move towards partnership built upon the use of open platforms and APIs seen in fintech will soon come to insurance, whether through an insurer (or reinsurer) launching an open platform on which insurtechs can develop products or by opening up access to third party. This will mark a shift to a more modular insurance market.
Whither the insurer? Value chain disaggregation moves up a gear
A fragmenting value chain could see carriers’ customers engage with several InsurTech players across distribution, policy servicing, and claims. The area where this can be seen most clearly at present is in distribution, and this can only be expected to intensify as marketplace platforms such as Friendsurance and PolicyGenius intermediate between customers and carriers and a number of insurtechs look set to further redefine distribution through the use of chatbots.
While insurers risk lesser control over their customer relationships, partnering with digital distribution insurtechs will enable them to target new markets and roll out new products. Ultimately, value chain disaggregation may result in greater specialization on the part of insurers, who could focus on their core business while outsourcing the rest.
Looking ahead, there are many reasons to think that 2017 will be an exciting year for insurTech, with a number of questions coming to mind in addition to the above, specifically:
- Which insurtechs will begin to achieve scale?
- How will the role of insurtechs in the industry evolve: will we see more single point disruptors, niche MGAs, or full-stack challenger carriers emerge?
- Will “big tech” respond with acquisition, consolidating the market?
- Will insurance’s “Uber moment” finally arrive?
- How will insurers’ business models begin to change in light of value chain disaggregation and the need to differentiate through value added services?
Hopefully, we will get some answers at the FinTech Futures’ conference dedicated to insurance and insurtech – InsurTech Rising.
InsurTech Rising will take place on 16-18 October 2017 in London, with Banking Technology as a media partner.