2018: The Year Ahead for InsurTech and the Insurance Sector
In 2017, the insurance sector adopted the term ‘Insurtech’ with growing enthusiasm, sensing a new source of competitive advantage, new revenue streams, disruptive potential, and a consequent funding upsurge. Investment in Insurtech companies has ballooned, with £218 million invested into UK insurance start-ups in the first six months of 2017 compared with just £7.8 million in the same period of the previous year.
Reportedly, a single company accounts for a major proportion of that investment. Gryphon Insurance’s £180 million fundraising is cited as the biggest of its kind by an Insurtech start-up. This is a remarkable sum by any standard, yet UK Insurtech investment activity is said to have risen by 422% in the first six months of last year. The major insurance carriers are recognising the value that innovative technologies can bring to their businesses and that trend will continue in 2018.
Big Data
An area of opportunity insurers lies with harnessing Big Data – a new digital commodity that is often referred to as “the next oil”. New data fields are being drilled all the time as processing power grows exponentially and it is difficult for humans to get their heads around how much extra data content will exists in one year – let alone five years’ time. To put things into perspective, however, the International Data Corporation (IDC) estimates that worldwide big data and business analytics (BDA) revenues will rise from $150.8 billion last year to more than $ 210 billion in 2020.
Previously, it was devices like computers, tablets and phones that were able to connect to the Internet but more and more everyday tools are getting connected. 8.4 billion internet-enabled smart devices can now communicate and interact with other machines in the so-called Internet of Things (IoT) a figure likely to grow to more than 20 billion devices by 2020. Data analysed through IoT can create a more thorough understanding of insurers’ risk profiles, which is transforming the way they transact business with their policyholders. More insurance companies are using the data they hold and access via third parties to deliver more targeted products and services, bespoke pricing and a more effective claims process.
Meanwhile, big data is being applied by insurers to forecast present and emerging scenarios, which should reduce risk and premium costs for policyholders. One example is the use of black boxes, or telematics – even camatics – in cars and heavy goods vehicles so as to monitor how safely the driver manoeuvres their vehicle. This enables insurers to reward good driving with lower premiums or discounts. (Connected) household names such as Direct Line, Bell, Admiral, Tesco Bank and the RAC, are offering such services already offering the service. There are presently 850,000 telematics-based motor insurance policies used in the UK, according to Ptolemus – and that number that is growing 6-8% per quarter.
In this new data driven age it now possible for drones to fly higher on the thermals of the digital revolution to decrease losses and obtain more granular analytics following natural disasters. Losses from Hurricane Irma have been predicted to reach $20- to $40 billion and drones are being used to obtain greater insight into the damage and claims that resulted from that disaster. Digital images collected by drones are facilitating faster loss assessments and claim processing. This same data will also play a part in predicting geographies, sectors and properties likely to be most heavily impacted, which will reduce risk in the industry.
GDPR
No comment on big data can pass in 2018 without touching on the subject of the impending General Data Protection Regulation. The topic was on the DOCOsoft agenda during our new User Community meeting held at the end of 2017. The new regulation is based around minimising the data stored for individuals and how long it is held. GDPR comes into force May 25th 2018 and is a common regulation that impacts everyone in the London insurance market.
DOCOsoft has been attending Seminars and having discussions with GDPR Consultants. We are currently identifying all data in the system that could be classified as PII and categorising this as High, Medium or Low risk data while documenting the support processes that will assist some of the GDPR requirements. We are currently investigating potential features that will assist with compliance while raising further awareness amongst the DOCOsoft user base and Best Practice groups with specific regards to GDPR, Brexit and other market relevant topics.
Reinsurance Renewals
One (re)insurance trend that has adopted perennial status is the soft market. Although certain sectors such as the automotive industry have experienced uplift in rates for certain segments, the rest of the industry remains relatively flat despite the recent hurricane season. As the Financial Times reported at the start of the year, London and the wider global reinsurance industry is braced for a year of cost-cutting with the December contract renewal season delivering weaker prices for the fifth year in a row.
According to broker Willis Re International, prices globally are now 30 per cent lower than they were in 2011. Even so, at the half-year stage in 2016, reinsurers were producing returns on equity of about 9 per cent. “Compare that to a lot of other industries, and it is not bad,” according to the report’s author. That profitability could be dented by higher claims, however.
The Willis Re report anticipates cost cutting across the industry as it strives to keep producing profits, potentially leading to more merger and acquisition activity. Reinsurers are becoming choosier as they decide which insurers merit the best prices. It is during times such as these that the claims department can really begin to add value by continuing to invest in the market knowledge, technology expertise and insurance focused talent that Insurtech companies are providing.