After a long period of debate as to whether the hype is justified, the time of insurtech is at hand, with innovators in this sector helping to reinvigorate insurance with tech-driven business models that completely transform the customer experience.
That’s the central message to emerge from the InsurTech Rising International conference in Paris in October, according to Alex Thomson, co-founder at Naked insurance.
“Insurance has a reputation for being a conservative industry that resists change, but the overarching theme at InsurTechRising International was that we’re starting to make material progress in using technology to rejuvenate the industry, but the best is yet to come,” says Thomson, who was invited to take part in a panel discussion about bridging the gap between corporates and startups in the insurance industry.
“We’re seeing a lot of innovative thinking coming to the fore in insurance, along with investments aimed at transforming the customer experience. At last, insurance is entering the digital age.”
Thomson discusses five key themes that emerged from the presentations by a range of venture capital firms, insurtech companies, and mainstream insurers.
The insurance industry is under massive pressure to transform
Traditional insurers are recognising that the industry’s Kodak moment is close – they need to digitise or they will face the danger of fading into irrelevance.
Consumer demand is the major catalyst for change: people want interactions with insurance companies to be as easy, convenient and transparent as making a purchase from Amazon.
Having lagged other industries in digitising their businesses for so long, insurers are now looking at digital transformation in the back-office and at the customer interface as a burning urgency.
Insurance companies are looking at insurtechs as partners, not rivals
When the term insurtech first started to be thrown around a few years ago, many mainstream insurance companies dismissed it as a fad. Others regarded insurtech companies as potential rivals.
But now, they are looking at insurtech companies as potential partners in the digital transformation of their businesses and as sources of innovative ideas that can help them to grow.
In some cases, that means a traditional insurance company incubating or investing in a digital challenger insurance brand; in others, it’s about partnering with an insurtech that can provide a compelling solution in a part of the value chain, such as claims or distribution.
The intention might be to integrate the insurtech brand or solution into the mainstream business at a later stage.
There’s another category to consider: the startups that are built from scratch to take on the incumbents in the insurance industry. Some of them have a head start in developing pioneering tech-driven business models and customer experiences and could be well positioned to become to insurance what Amazon is to retail or Uber to personal transport.
There is a lot of money flowing into insurance innovation
Insurtech is attracting big money from corporate backers and venture capitalists – Hampleton Partners says that $3-billion flowed into insurtech deals in the first of half of 2019 and that it expects fundraising in the sector to top $6-billion for the full year.
Some of the leading insurtech disruptors are attracting staggering valuations – mobile-first US auto insurer, Root, is valued at $3,65-billion, for example.
AI is driving insurance into the future
Artificial intelligence (AI) is where much of the action is. We’re seeing a lot of the innovation in insurtech zoom in on using AI to streamline insurance business processes, from underwriting and claims management through to customer interaction.
Insurtech startups have the advantage here because they can put sophisticated AI systems in place that are unburdened by the legacy systems and data sources that hold the incumbents back from implementing truly digital and automated processes.
The innovation we will see from the IoT is just getting started
AI becomes even more interesting when you combine it with the Internet of Things (IoT). Insurers can collect a wealth of data from customer devices such as telematics units in cars and smart sensors in homes to make better underwriting decisions.
For example, a vehicle telematics system paired with a virtual assistant could offer real-time coaching to help a policyholder drive more safely, or a sensor in the home could warn of leaking water.
Combine this sort of customer insight with big data sources like traffic and mapping services, and the possibilities become even more exciting.
For example, imagine combining a data source such as accident reports with a customer’s GPS location to warn a driver that they are in a high accident zone and advising them to take care or even to consider an alternative route.