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The traditions and entrenched ways of a centuries-old industry such as insurance are difficult to change overnight. It’s probably why ‘insurtech’ initially lagged the wider fintech frenzy. That’s according to Amir Nabi, Chief Operating Officer at Dolfin – although he thinks insurance is ripe for an acceleration in technical transformation.
Insurtech has now become a red-hot buzzword for the insurance industry, the venture capital industry and fintech start-up community. In 2016, PWC’s Global FinTech Survey found that three in four insurers predicted disruption of their business over the next five years. Since then, insurtech investment has surged. Data by research company FinTech Global shows that worldwide investment into insurtech start-ups and scale-ups reached over $3bn in 2018, nearly double that of 2017.
Nabi thinks artificial intelligence and big-data processing, which have moved quickly from theory to commercial application, hold the most potential to change insurance sales, servicing, and the back office. He is also predicting some closer alliances between the insurance and wealth management industries.
More cross-selling expected
A lot of the initial insurtech hype involved direct-to-consumer niche products. Companies such as Trov, which distributes and manages ‘insurance-on-demand’ through an app, emerged, allowing policyholders to buy cover for items such as cameras and laptops for short periods (when travelling, for example) and to switch the insurance cover on and off at will.
But the jury is out on the potential of these niche insurtechs. Sam Evans, founding partner at Eos Venture Partners, a VC fund that only invests in insurtech, says: “We believe this is a difficult area to scale and prefer not to invest in direct-to-consumer propositions given the competitive market and high customer acquisition costs.”
“You need both tech and human interaction to serve a client base of any significant size.” – Amir Nabi, Dolfin
Nabi also thinks they can only go so far. “There is a demand from clients for tech solutions, but pure tech solutions have limitations. Whenever a sales or servicing process gets more complicated, humans have to step in. So you need both to serve a client base of any significant size. Many insurtechs will have to partner with incumbent insurers or other companies with strong customer servicing operations.”
He gives an example: “As wealth managers, we have deep client relationships which include an understanding of their insurance requirements. And for some of our clients, we also have sight of their transactional banking data – obviously with their permission – through APIs [application programming interfaces – an automated data feed from a bank to a third party]. We have already had some success using this data to identify uncompetitive insurance purchases. And the algorithms we use to do this will only become more sophisticated. We are working towards automatically identifying clients’ insurance purchases, benchmarking them, and flagging areas needing intervention. In the future, I can also see us setting up a range of relationships with insurers and insurtechs so that we can use customer data to introduce our clients to the most appropriate providers – saving them a lot of legwork.”
Other sectors are also looking to use existing client relationships and technology to enter the insurance market. Evans reckons big tech is a sector to watch: “We expect to see more activity from the tech giants. Amazon has been active with an insurance investment in India and has applied for an insurance licence. It also has the health insurance initiative in the US with Berkshire and JP Morgan. The Chinese tech giants Alibaba, Baidu and Tencent are interesting too, with all three active in the insurance and insurtech space. They have distribution, trust, engagement and significant amounts of information on their customers that allows tailored insurance offerings at point-of-sale or time-of-need.”
Looking outside of sales
But Evans thinks insurance claims are a bigger insurtech opportunity than sales: “Claims remain under-represented from an innovation perspective, given it’s the largest driver of underwriting performance and also the biggest determinant of customer life-time value.”
One of the more innovative claims newcomers is Tractable, which uses artificial intelligence to inspect photos of damaged cars and properties, and automatically assess the value of that damage in seconds, recommending replacement or repair as appropriate. Speaking in 2017, President Adrian Cohen said: “Computers [using AI] can now see better than humans. And assessing damage to a car or to a property is essentially a visual task. Behind our interface lies an AI, which has been trained on hundreds of millions of images of damaged vehicles. It’s been told to predict the safest and most efficient repair method. It’s like combining the experience of thousands of expert appraisers to one single intelligence.”
“Claims remain the largest driver of underwriting performance and also the biggest determinant of customer life-time value.” – Sam Evans, Eos Venture Partners
Another area where rapid insurtech advances are being seen is in the use of sensors and the internet of things (IoT). Concirrus is one of these, capturing data from IoT devices, sensors, satellites and the like, and using it for marine insurance (ships and cargo). The system is used to help with policy underwriting, providing insurers with much more granular data about the ships they are insuring, such as its history, maintenance record and whether a vessel’s typical routes and ports are high or low risk. It’s also used as a risk management tool. If a ship ventures into waters where the piracy risk is high, such as Somalia, and the insurance policy excludes cover in these waters, an automated alert can be sent out to insurers and to the ship so that the necessary action can be taken.
Evans also sees potential for wearable technology to progress the focus of health and life insurance from protection (just offering insurance policies) to prevention (encouraging healthier lifestyles such as discounts or rewards for reaching daily step counts), to prediction (using data gathered by smart watches, such as heart-rate data, to predict the risk of disease). He says tailored insurance policies will emerge, linked to health-tech and med-tech devices, to support monitoring, early intervention and better health outcomes.
It’s probably fair to say we can expect a lot of activity in this area, as we’re only in the early stages of moving from protection to prevention, such as the healthy-lifestyle rewards offered by Vitality, with its health- and life-insurance products.