Some professionals argue that the only path to sustainable growth is to work with incumbents in the industry. Indeed, startup-institution relationships (whether its Carrier-InsurTech, or Bank-FinTech cases) have evolved from competition to a beautiful friendship, bringing out the best and accelerating innovation adoption.
On the other hand, while the benefits of collaborative culture are undeniable for the insurance industry (as any other), imbalanced partnerships may also impose a long-term threat to the startup side in terms of eradication of its competitive edge. More particularly, accelerating collaboration in the form of accelerators, dedicated VC funds established by institutional insurers, creates an opportunity for incumbents to learn and adopt the best technology and solutions (which, of course, is very important for the industry), while remaining in a safe and powerful position.
According to PineBridge Investments, an asset management firm with around $83 billion in AUM, in addition to product development and risk pricing, InsurTech could bring improvements in cost and efficiency of customer acquisition and engagement, the underwriting process, fraud detection/prevention, and claims management.
AEG experts emphasize that with the adoption of advanced technologies, “Claims processes are becoming a lot more efficient, fraud will likely be caught more often, and most importantly of all, more and more losses are and will continue to be prevented.” Estimates suggest that a 1% improvement in the loss ratio for a £1 billion (US $1.25 billion) insurer, with better use of data, is worth £10 million ($12.5 million) on the bottom line. Analytics can flag up claims for closer inspection, priority handling or other action.
Naturally, to be able to harness those opportunities, the largest carriers turned to traditional forms of collaboration. AIA, AXA, MetLife, Aviva, and other industry leaders were quick on establishing ties with the startup community to transform own business models and strengthen the foundation of their leadership. Going even further, insurance companies are establishing their innovation mining machines to source talent, ideas, solutions and learn about the advanced applications of big data analytics, Internet of Things (IoT), mobile technology, AI, social networks and blockchain technology.
Illustrated initiatives result in insurance companies bringing advanced technology into operations, amping up their competitiveness. A vivid example is Fukoku Mutual Life, a Japanese insurance company, which was reported to be laying off more than 30 employees and replacing them with an artificial intelligence system that will be calculating policy payouts instead of human counterparts. According to Fortune, Fukoku Mutual Life expects the $1.73 million smart system based on IBM's Watson Explorer — which costs around $129,000 each year to maintain — to save the company about $1.21 million each year.
“With a significant portion of an insurer’s cost structure devoted to human resources, any shift towards automation should deliver significant cost savings.
Our experience working with insurers suggests that – by using machines instead of humans – insurers could cut their claims processing times down from a number of months to just a matter of minutes. What is more, machine learning is often more accurate than humans meaning that insurers could also cut down the number of denials that result in appeals they may ultimately need to pay out.”
The Guardian has reported that two other Japanese insurance companies – Dai-Ichi Life Insurance and Japan Post Insurance – are also adopting AI for a higher efficiency. Dai-Ichi Life Insurance, for example, introduced a Watson-based system to assess payments, and Japan Post Insurance is interested in introducing a similar setup.
The rapid transition to digital channels in the insurance industry and the benchmark set by online insurance platforms with chatbots and virtual assistants, led large insurers higher digitization of operations. Allstate Business Insurance, for example, with help of Earley Information Science, developed a virtual assistant that provides agents with the answers they need and created a deep taxonomy for its knowledge repository. As a result, Allstate has experienced reduced call volume to call centers, stronger acceptance of its technology and improved business results.
The Allstate solution called ABIe is an online avatar-based expert system that provides 10,000 exclusive sales agents and 2,000 independent agents with guided access to an online knowledge base enabling immediate and accurate answers to customer inquiries while streamlining the process of preparing sales quotations for small business insurance products.
Manulife’s Lab of Forward Thinking (LOFT) is setting another example. LOFT has been reported to be undergoing efforts to accelerate its adoption of new technologies. In April 2016, the Canadian insurer's US unit John Hancock took a deep dive into blockchain — collaborating with startups ConsenSys and BlockApps.
Further, according to Insurance Networking News, Manulife began exploring artificial intelligence and deep learning in its innovation labs through partnerships with Nervana Systems and indico data solutions. Once complete, the platform will serve as a means for research analysts to analyze and decipher natural language from public sources to make smarter investment decisions.
It's clear that insurers are fully invested in adopting the best technology startups and talent can offer. Although there are certain benefits for the startup side as well, incumbents have an upper hand when it comes to innovation adoption due to very same reasons banks have over FinTech startups – they have well-established brands, capital, business infrastructure, and a vast customer base. Moreover, PineBridge emphasizes that with a stronger understanding of the insurance market and existing customers, incumbent insurers can better capitalize on InsurTech to grow and expand current businesses.
The large incumbents can readily offer novel insurance products once these products prove to be viable. And the way for insurers to assess potential viability is through studying the performance of InsurTech startups, popularizing new models and types of insurance. By observing and learning from the performance of Bought By Many new Pet Insurance introduced just this Wednesday, large insurers can develop their own personalized policies or at least use startup as channels for capital allocation and expansion.
Moreover, as PineBridge professionals suggest, with personalized risk assessment, future insurance products could evolve toward a single policy covering all personal insurance needs such as home, auto, health, property and travel. The incumbent insurers are better positioned to develop and popularize the concept of customized insurance solutions.