Traditionally seen as laggards in technology adoption and dismissed as “boring” and “conservative”, the insurance industry has shaken off its lethargy over the past decade. This renaissance has picked up pace in recent years with innovators like Progressive (first to conceptualize and design usage based insurance) and Esurance (first online only insurance company).
This increase in InsurTech velocity is primarily driven by the entry of start-ups. With increased customer expectations, shaped by ‘digital native’ businesses like Uber, Airbnb, and Amazon, start-ups view the industry as ripe for disruption. A Forbes report estimates that nearly $4 Billion in new investments have been made in the InsurTech space in the last three years.
InsurTechs brandishing offerings based on technologies like cloud, Internet of Things (IoT), Artificial Intelligence (AI), and automation and advanced analytics are disrupting individual segments of the insurance value chain, such as sales and distribution, billing, claims, and the like. Even within these segments, InsurTechs are carving out niches with point solutions that are making the process cheaper, better, and faster.
Disrupting the Insurance Value Chain?
The diagram below highlights four major trends that can profoundly affect the insurance value chain:
InsurTechs driving change in the above areas include:
- AdviceRobo provides preventive solutions that combine data from both structured and unstructured sources and uses machine learning to score and predict risk behavior of consumers — for example, predictions on customer churn, propensity for loss, and the like. The predictions are actionable, as they are at individual customer level and help support front-line sales for staff/agents while customer interaction.
- For many customers, big data is much like big brother; insurers who track personal data cannot be trusted. Most initiatives taken by insurers are about better pricing and risk reduction, the added value of which is limited for the customer. To really reap the benefits of expanded sources of data, insurers need to address customer data privacy concerns. Traity enables consumers to protect their reputation. Traity uses all sorts of new data sources, such as Facebook, AirBnB and Linkedin, to help customers prove their trustworthiness. Munich Re’s legal protection brand DAS has partnered with Traity to offer new kinds of services.
- Backbase is an omni-channel platform built on open architecture principles. It builds an intuitive customer experience layer on top of insurers’ existing policy administration systems, creating direct customer portals and providing the opportunity to integrate best-of-breed applications while improving agent and employee portals. Swiss Re, Hiscox, and Legal & General are some insurers using the Backbase platform.
- OutShared’s CynoClaim solution helps in automating over 60% of all claims, bringing down costs, while enhancing customer satisfaction. Early implementations have shown an almost 50% reduction in costs and 40% increase in customer satisfaction. The solution takes 6 to 9 months to implement, be it a greenfield implementation or a migration from a legacy platform.
Another InsurTech, Snapsheet, uses a cloud-based software and serves auto insurance providers by guiding users through a photo and information gathering process on the scene of an accident. On the back end, Snapsheet helps insurance companies in their virtual process claims without having to send an adjuster to inspect a vehicle.
Neos aims to create an app, combined with a host of Internet of Things (IoT) sensors and specialized hardware, which will allow you to turn the mains off remotely, call a repairman, and make a claim, all from your phone.
How are established legacy insurers reacting to all the InsurTech hype?
Large, traditional insurers are closely watching the InsurTech space, as it gives them an opportunity to get an early look at the InsurTech offerings poised to hit the market. It’s also an ideal forum for collaboration with (and learning from) other insurers, and a great chance for brand positioning amongst some of the smartest start-ups in the market.
These insurers are partnering with startups and players outside the insurance sector to speed up digital innovation through in-house incubators, accelerators, and innovation labs. This can be a symbiotic relationship – insurers serve as a test bed for startups to hone their ideas and test them for industrial strength capabilities, while insurers gain access to “innovation labs” that help them stay ahead of key technology trends shaping the industry. State Farm, for example, fosters innovative research through its “485 Think Lab,” which focuses on “collaborative ideation.”
Other legacy insurers are investing in forming venture capital arms to invest in tech startups. Entities like AXA Strategic Investors, USAA Ventures, and XL Innovate not only provide funding, but also provide strategic support to startups. Large insurers have created VC funds that invest relatively small amounts in multiple startups, so that they can gain access to potential breakthroughs in multiple areas of interest to them.
While many insurance companies are jumping into InsurTech investments, not all are investing. Smaller or mid-size companies, who do not have the funds to invest, may choose to wait until the innovations become mainstream, though this could be too late for them to gain any advantage. Still others, including some larger insurers, have chosen to adopt a wait and watch approach, in an effort to gauge tech trends that gain traction and then selectively foray into those areas.
So, all said and done, what do these InsurTechs portend?
These are early days for InsurTechs with their current small size and limited financial muscle. However, the ideas and innovations they bring could potentially be game changers disrupting the business model and making the insurance market far more efficient.
As with startups in any sector, a lot of these would tend to flame out due to various reasons – inability in execution, not keeping up with fast changing technology trends, inability to gain traction beyond early success, or a lack of sustained funding. Yet, those that can get their offering right and can sustain disruptive business models built on game changing technology could prove to be potential unicorns in this sector.