What Can Insurers Expect From a New Phase of InsurTech?
If you’re counting the years since the inception of the term InsurTech, you may be surprised to know that it is officially 12 years old. InsurTech is still in the “tween” years, though it is getting ready to move into a new phase — being a teenager.
We all know ‘tweens,’ don’t we? If we were to stereotype them, they sometimes put on the aura of self-assurance, when inwardly, they are a bundle of nerves. Sometimes they are a little awkward and perhaps more than a little impatient. Who can blame them? Tweens are headed somewhere fast, but they rarely know their destination. Where will they land between school choices and job prospects and their future? Tween uncertainty, combined with adult-like learning and understanding, often molds them into some fascinating, unique, and independent personalities.
Maybe InsurTechs have something in common. While some Insurance Technology is mature, intelligent, wise, and experienced, InsurTech itself represents an infusion of uniqueness, different perspectives, and energy — high intelligence in an unrefined package. It adds personality and different perspectives to many of the tried and true processes and systems that run insurance organizations. While they have a lot to learn, the future prospects are still good. Some InsurTech companies are still peering into the future with an eye toward where they fit.
Majesco recently invited four well-known industry experts to join me in a conversation on just where InsurTech is headed and where insurers should be taking notice. If insurers are to make the right technology choices and place their bets properly, they need to know where InsurTechs fit into their future and where they fit, right now, on the agenda for imperative change. You can join our conversation by watching the Insurance Growth & Opportunities webinar. You can also capture some of the highlights by reading some insightful panelist input that I’ve collected here.
Our panel included:
Arlene Kern, Senior Vice President and Innovation Scout, Munich Re
Peggy Klingel, Innovative Leader and Growth Strategist, Allstate
Chris Cheatham, Product Evangelist, Bold Penguin
Jay Sarzen, VP Senior Solutions Manager US, Swiss Re
and myself, Denise Garth, Chief Strategy Officer, Majesco
If you’re skimming, our topics cover:
- Data and analytics trends
- Platforms and ecosystems
- Mitigating loss
- InsurTech maturity
- Insurance priorities for 2023
- Bold predictions — looking out 5 years
Data and Analytics Trends
What opportunities are arising because of data and analytics?
On the commercial side, we are just now starting to see the benefits of all the AI and data aggregation — working with data to speed up the application process and underwrite risks. I’m getting excited to see that information get embedded now in the flow, not just for large accounts, but as data gets cheaper, for small business insurance.
In the small business insurance space, there are a lot of admitted products available now online. You can get digital quotes. That’s great — but, I’m interested in the next part related to Excess & Surplus lines. How can non-admitted products be digitized? I think that will move commercial insurance quoting from “interesting and more efficient” into something that is magical. What I mean by magical is, like 10 times better. If an agent can go on a platform and get a quote, for any account no matter what period, that is magical.
I agree with Chris. Data is going to be more readily available, and it’s going to become cheaper. I think at some point, it will just become a commodity, and it will spread to the entire value chain. So, it’s not so much about the data in the future, but about the analytics that you can apply to that data and the insights that you can draw from it. How can you personalize a product, know a customer better, and develop new products as a result of using that data?
As an industry, we rely on historical data in order to predict future pricing. Some of these new risks, however, just don’t have the history we need. But new data is giving us the opportunity to perhaps find proxies or create synthetic views or advanced models. This will enable more scenario testing and the potential to offer different types of products that may also lead to new partnerships.
Parametric is really something that can be built out pretty easily. We see it as a nascent opportunity. With the right data and the right analysis, you can automatically have something triggered for someone who lives in an area that’s impacted by parametric events like a hurricane, or an earthquake or some other wind event. It is as “low thought” as possible. Providing that kind of customer experience is a win for everyone. I see these types of distribution offerings emerging because, whether climate change is man-made or naturally occurring, people are being impacted by it at a much greater level than they were in the past.
Platforms and Ecosystems
What is standing in the way and what is enabling insurance innovation?
The foundation that supports growth opportunities is next-generation platform technology, including new tech like IoT, data and analytics and ecosystems to drive growth.
In order to leverage data sources, partnering technologies, and relationships — insurers are really required to turn to native cloud technology, APIs, microservices and potentially multiple policy systems to support the unique market segments or lines of business. With the advent of Cloud SaaS solutions, the cost structure is now operational versus capital costs, opening the door for multiple policy solutions that meet the needs of the business and provide greater flexibility to launch new products.
The industry is still struggling with legacy systems and challenging experiences for customers and agents. Omnichannel is evolving to become almost table stakes. Unless these systems can be unlocked, insurers may need to have separate policy admin systems and platforms to innovate and provide the new products that they want. The challenge of having these multiple systems will then unfold over the next few years. The migration to new platforms is not going to be simple. It is difficult to make these transitions happen smoothly for customers or agents.
The agent side is dominated by a couple of agency management systems, and I’m not sure that interoperable data interchange is really available yet. That is going to be super important. Getting APIs into agency management systems is not the easiest thing in the world right now. It will have to be addressed going forward. The interchange of data isn’t just for carriers to reach agents, but for the agents to have access to the data and systems that they need.
Is there going to be a shift from risk transfer to risk prevention?
If carriers can prevent a claims event from happening, everyone wins. The carrier pays out fewer losses. The customer is less inconvenienced by suffering loss. Carriers want to be able to provide their policyholders with the tools to mitigate loss, whether that is decreasing frequency or severity. The more tools that carriers can share with their policyholders, the better off everyone will be.
Of course, without going into too much detail about telematics, there is a fine line between intrusion and welcome guidance. Carriers are going to really have to figure out that balance. Ultimately, I think policyholders will inherently see the value in having that sort of mechanism in place.
The Maturity of InsurTechs
What is the next phase of InsurTech that is going to emerge?
If we break InsurTech down into phases, wave one is made up of anyone who’s accepted money between 2010 to 2021 to build technology for insurance. You’re seeing that cycle starting to wrap up. The companies that remain are going to struggle to raise money because their huge valuations have all been halved or cut by three-fourths.
In my opinion, what’s going to come out of this next wave is going to be a lot of efficiency technology, not distribution technology. Distribution was hammered home in this last wave. Now we are going to see back office technology improvements. We’ll see niche products where people know how to efficiently go after certain types of customers, particularly on the commercial insurance side. We’ll see the niche products and the back-office products that make insurance better incrementally.
What we saw in the early days of InsurTech might have been a little too much hype. The hype is largely over. The fear of missing out is over because everybody can participate in InsurTech, in whatever way they want to participate. It is bringing InsurTech valuations into a range that seems to make more sense.
At the same time, carriers have become much clearer on their theses — their investment thesis and their partner thesis. They have honed in on the topics that are most important to them and where they feel they can bring the most value to their portfolios or operations. Carriers now know, “This is what we need to do in order to be successful. This is where we start. This is what we’ll deliver first.” It should raise the quality of the InsurTechs, because carriers are going to be very clear on what it is that they want.
I think the M&A activity is going to center potentially on larger technology companies that will look at the InsurTechs that can augment some of their existing products and services. InsurTechs that have viable business models and are operating profitably are going to be more attractive, especially if they have a strong technology team for implementation and professional services. The true value of these partnerships is actually realizing the benefits in the carrier’s business. Carriers sometimes need help making that happen. I’m not sure that all InsurTechs were (previously) focused on a smooth, fast, and viable implementation that produced results right away.
“Best Priorities” for Insurers in 2023
In a time of uncertainty, where does tech investment still makes sense?
Telematics is where this industry is going. The amount of data that can be collected from buildings, from cars, from people’s homes, will just continue to drive an evolution/revolution in underwriting to deliver not only a great, personalized experience, but enhanced risk mitigation and whatever insurers can do to prevent loss.
One of our priorities would include building on our use of data. We are continually searching for new data sources and an understanding of what value the data may provide. Data and analytics help us gain the benefit of these new data sources to improve pricing accuracy, build new products and create more personalized customer experiences.
Carriers need to look at APIs to make sure they have APIs built out. The window for carriers that don’t have APIs is starting to close because a lot of insurance is going digital or is digital already. I would move quickly on that space.
Next, once those APIs are really well built, functional, and robust, you really need to consider connecting to other platforms. The window of opportunity is closing for this in the commercial insurance space.
What might the insurance industry see in the next five years?
My bold prediction for the industry is that live “flesh and blood” agents will still be relevant in the digital age.
The effective use of data is going to start to separate some of the haves and have nots. Companies that don’t have access to data analytics in the right digital platforms and APIs are not going to have the products to compete with those that do.
I think 95% of commercial insurance agents will be buying insurance through aggregators in five years.
My bold prediction is that the insurance industry will be able to close the insurance gap, rather than the insurance gap getting bigger.
I think we are going to see the beginning of a different set of leaders in the industry. As the industry meets more niche needs and as insurers begin to partner with different organizations to reach and capture customers, we will begin to see a real shift in leaders within the industry across all segments.
InsurTech is maturing. It is making the rounds of the insurance value chain and paying off on the promise of improved customer service, enhanced data intelligence, and exponentially better operations. Is your organization poised to take advantage of InsurTech’s next wave? What is your bold prediction for the next five years? For a well-rounded perspective on the InsurTech horizon, watch the full webinar, Insurance Growth & Opportunities — How Next Gen Technology, Products, Data, Channels and Ecosystems are Driving Change in the Face of Increasing Market Changes.