Carrier-InsurTech relationships went through stages very similar to the bank-FinTech narrative. In an industry-defining statement, Andrew Rear, Chief Executive at Munich Re’s Digital Partners, shared a few years ago, “InsurTech is here to stay, and it will bring fundamental change to the insurance industry.”
“InsurTechs have emerged to offer simpler products and streamlined customer experience, catering to a growing generational shift toward millennials. While the InsurTech industry is still in its infancy, the sector is gaining momentum and garnering increased attention from venture capitalists (VC’s), as well as established insurers.” – The National Association of Insurance Commissioners (NAIC)
Indeed, over the course of InsurTech’s development and the accelerating pace of investments in the space, the startup ecosystem has considerably transformed consumer expectations on how insurance products should be built and delivered.
“The amplitude of the digital transformation happening in the insurance industry is widespread and encompasses all of the phases of the insurance value chain, from underwriting to claims,” Matteo Carbone emphasized in his article called The Future of Insurance Is InsurTech. “I’m convinced that insurance companies will still be relevant in the future, or will become even more relevant than they are now, but these companies will have to be InsurTechs or players who use technology as the main enablers for reaching their own strategic objectives.”
Appreciative of the change the technology behind InsurTech solutions can bring into one of the most complex industries globally, a series of partnerships have been formed between carriers, technology companies, InsurTech, and beyond. AXA + Ant Financial, Manulife + Indico, Allstate + Openbay, Allianz + N26, Hannover Re + Ladder, Zurich + Cocoon, Genworth + Roostify, AXA + Trov, Munich Re + Blink Innovation, Munich Re + Wrisk, and many other mutually beneficial partnerships are bringing tech-enabled innovation into the traditional insurance business.
One of the latest partnerships is the XL Catlin and Praedicat tie-up. According to the official press release, to help clients address changing liability insurance needs, XL Catlin has enlisted Praedicat, an InsureTech analytics company based in California, and its emerging risk models and software for casualty insurance. The multi-year engagement will include access to Praedicat’s latency risk model and mass litigation scenarios, its software on emerging risks called CoMeta, and its portfolio modeling software Oortfolio. Praedicat’s models and software analyze risks that emerge over time, called “latent” risks, since these risks can build up in an insurer’s portfolio.
The same startup, Praedicat, has been working with Allianz SE to allow the insurer better predict the key catastrophe liability risks of the future. By combining Praedicat’s predictive modeling approach with AGCS’ underwriting processes and extensive liability risk portfolio analysis, the companies aim to identify the next generation of catastrophe liability risks for business customers far earlier than under current methods. Praedicat’s modeling engine uses machine learning technology to scan large volumes of data from peer-reviewed science publications and profile the likelihood that products or substances will generate litigation risks over their lifecycle.
“Emerging technologies – like big data, the Internet of Things (IoT), mobile technology, artificial intelligence (AI), wearable devices and blockchain–are revolutionizing the insurance industry and changing consumer expectations and preferences. Moreover, consumer habits are evolving rapidly. <…> The millennials are well versed in new technologies and looking to take a more hands-on approach when it comes to managing their finances and purchasing insurance products.” – NAIC
Application areas vary case by case; personalized customer experience, understanding customer behavior, streamlining the claims process, preventing fraud, improving underwriting, etc. MetLife shares that Shift Technology, for example, a startup based in France, helped a European coalition of insurers analyze 13 million claims. The technology identified 3,000 new cases of potential fraud, including a large, organized crime scheme that impacted nearly all the coalition’s members. The scam had siphoned millions of Euros from the group’s insurance company members over the span of many years, according to a Shift Technology case study.
Another massive insurer, QBE Insurance Group (QBE), not only closed an investment into Cytora through its venture arm in 2017 but also entered an agreement to use the three-year-old London-based startups’ technology. Cytora uses AI and open-source data to help commercial insurers lower loss ratios, grow premiums, and improve expense ratios. In 2018, the Cytora Risk Engine will be deployed across QBE property and casualty lines. The Cytora Risk Engine, driven by machine learning algorithms, combines an insurer’s internal data on a specific cover with external information from a broad spectrum of sources. This generates a risk score, which provides enhanced insight into expected claims activity on the whole portfolio and also at an individual risk level.
“InsurTech innovation is occurring across the entire insurance value chain – from distribution and marketing, product design, underwriting, claims management & balance sheet management, and across all lines of insurance – property and casualty, life and health. Distribution is the area of highest focus. InsurTechs are reaching new customers through new distribution mediums – addressing generational shifts in the way people communicate, access information and make decisions – while not disturbing traditional channels.” – NAIC
Based on a variety of examples, 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.
NAIC shares that the very nature of the business of insurance is transforming, driven by technological advancements and socio-economic trends. In the long term, that means the revival of the insurance industry, but not necessarily with the most benefit harnessed by the startup community. Traditional players will no longer be ‘traditional’ in the full sense. Slowly but surely, the largest carriers will reinvent themselves, and will still be the dominating force whether in the back-end (perhaps as re-insurers), or even front-end.
“While InsurTech has allowed startups to grow market share in certain product segments, incumbent insurers still have an enormous advantage. They have well-established brands, capital, business infrastructure, and a vast customer base. 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.” – PineBridge Investments