A Three Trillion Dollar Opportunity
Insurance Insider’s May InsiderTech Live event focused on the InsurTech market and the evolution and future of embedded insurance. There was also much focus on Insure Tech innovators taking market share away from traditional channels. Incumbents are spending big; suddenly the leading insurance players are investing significant amounts in technology. All early-stage companies are going to pivot, which means that the ability to be agile and flexible is going to be essential.
The potential is huge, however. Take the example of PayPal. One single payments company is worth more than every InsureTech in the world combined. It shows how much room there is still left to grow in the Insure Tech space. Even though valuations are high, InsureTech is still going to be worth a lot more as an industry, five years from now, than it is today.
Embedded Insurance
One event panellist said that people think of embedded insurance as a default insurance or automatic insurance, or just baked into the product, which is a very narrow interpretation or definition of embedded insurance. Others see it as a $3 trillion opportunity.
Embedded insurance is certainly an exciting space. The property and casualty industry is very broad, ranging from personal lines, commercial lines to specialty lines so everyone’s definition of embedded insurance will vary based on what product lines you focus on.
Embedded insurance can be extremely customised based on the purchase, at the time of purchase, and also enhancing value of the overall purchase because it is bundled, so it’s no longer an ‘asynchronous transaction’. It becomes something that’s really crafted for what the customer is experiencing at that moment and optimised in a way that is a ‘no brainer’ for the consumer.
Data Ecosystems
All the ecosystems in which we embed our insurance solutions will help drive a more accurate underwriting process. Data is a key element that supports better underwriting, creating a more elegant user experience or journey. The key to success will be making it a no brainer for the customer, not because you are selling it to them in a way where it makes it hard for them to opt out, but because it’s so obvious that they should buy because of the way you’ve distributed and priced it. It’s about the customer.
Electronic Trading
As one event panellist said: “I struggle to think how we would have coped without electronic trading.” The big mistake to avoid is to take a paper-based process and replicate that in the electronic world, which gains nothing. The idea is to create data driven processes as data first. Completely rethink our business chains and business models both for the underwriter and the broker. Imagine a world in which an underwriter receives the submissions all data driven.”
In the Lloyd’s Blueprint, the rationale is about cost savings, but actually the benefits go far beyond and include better price discovery, better efficiency of the market, better allocation of capital, and ultimately writing many more risks and more difficult risks. That is the future 5-10 years from now.
Analytics Apps
According to one panellist, there is huge scope for start-ups and InsureTechs to engage with the market. One example given was the need to partner analytics with a user interface, adding functionality around Sanctions checking. This is indeed a tool that DOCOsoft has already successfully developed and rolled out with a number of our clients.
Other tools and functionality mentioned by a panel at the Insurance Insider event include a piece of software focusing on the visualisation of construction sites, mapping them using visual technologies, primarily to aid architects and engineers. But this tool has evolved into risk management and then into an insurance application. Another example in analytics, is a company which was set up to manage solar panel assets. If you have a solar panel form, it tracks the assets, their usage, the output and again evolved into risk management as an insurance application.
Beginning of a Hybrid Underwriting Approach?
Predictive analytics is part of the future of underwriting, according to panellists speaking at the event. Will that replace a lot of underwriting questions and proposal forms? Without doubt. There will, of course, continue to be a place for underwriters with their own unique skill sets and experience.
In the future, however, it seems that the winners in the new insurance landscape will need to marry insurance expertise with technology knowhow to survive and thrive. Bodies like the Chartered Insurance Institute will have an important role to play in this environment.
There was much talk of software engineers, being asked to obtain CII certification, which is certainly a route that DOCOsoft already adopts. A blend of insurance expertise and technology is the recipe for success. Collectively we need to do the same in the opposite direction. We need to make sure that everybody who works in insurance has a grounding in technology.
Using data to Understand Emerging Risks
One final area of interest to come out of the conference was the idea that insurers need to get closer to the original risk, to better understand emerging risks. One of the things that’s exciting for reinsurers about the start-ups is the quality of their data and how much they know about their book.
The difficulty is that the underlying data has so many errors with missing information, or a lack of consistent sources being formatted in ways that are easily digestible. Tools are being built to help traditional carriers to solve that challenge.
The ability for a firm to understand tranches of their portfolio and cohorts of their client base is something that the reinsurers can really sink their teeth into. The objective is to evaluate risk at a much more granular level rather than relying on a ‘mystery box’ for pricing. From the ground up, there is so much more granularity of data input, which must be the future for the industry.