INSURTECH: Changing channels
Written by Martin Allen-Smith
Technology is changing the way insurers and brokers are doing business. The challenge now facing the industry, says Martin Allen Smith, is how to adapt to this brave new world to fully exploit the opportunities it presents
The economic environment remains tough for insurers, but many are seeing that as a key driver to seek out profitable growth through a delicate combination of distribution initiatives and clever client hunting. It has meant that innovation has become the top business priority influencing IT investment plans in 2017, with around 85 per cent of European insurers monitoring InsurTech activity.
“Innovation and InsurTech appear to have captured the imagination of many insurers across the market, with approximately 85 per cent within our sample actively monitoring the market,” says Jamie Macgregor, senior vice-president at Celent’s insurance practice and co-author of a recent report on the business and IT priorities for European insurers.
It is an assessment shared by Thomas McCourtie, financial analyst at GlobalData. “The industry is looking to fall in line with other areas of commerce by providing consumers with quicker and more efficient services,” he explains. “InsurTech acts as the facilitator in developing new propositions which enable customers to obtain cover without the need to contact an advisor, and can be arranged remotely on a mobile device.”
So how exactly are commercial insurers and brokers using technology to support better decision making and deliver more effective customer service? Vincent Branch, chief executive of Accelerate at XL Catlin, said: “Insurers and brokers are engaging technology on a number of fronts. One, they’re looking at how they can leverage it to improve their processes to deliver greater efficiencies. The industry, for instance, is exploring how blockchain can help us better support our clients. As a member of the B3i initiative, we are designing a pilot application relating to reinsurance contracts. We are also working on a number of other blockchain initiatives looking at how we can incorporate information from our customers directly into digital insurance products – ultimately providing a better experience to our clients.
“Secondly, the industry is looking at using technology from a risk management perspective to gain better insight and make better decisions. It’s about understanding the innovations that are affecting our clients and will affect them in the future. XL Catlin is doing a lot in the field of mobile autonomy, for example, through our partnership with Oxbotica and our involvement in the Driven consortium. We’ve signed an agreement to support the adoption of mobile robotics solutions and are working to make this technology an insurable reality. We are sharing knowledge and expertise to understand the risks and design a solution which will ultimately help bring this technology to market.”
Commercial insurers and brokers continue to use technology to underpin their risk modelling, rating, policy administration and claims handling processes, according to Charles Taylor InsureTech CEO, Jason Sahota, adding that in recent years the trend around technology has been in the three main areas of analytics, automation of business processes and channels to market. “This has not only enabled insurers and brokers to make quicker and more effective decisions, but also to get reach into new markets or engage with their stakeholders across the insurance value chain differently,” he stresses.
Given the heritage of insurance being to make decisions based on risk models and the analysis of data (whether by actuaries, underwriters or brokers), using technology to support this has been standard practice for decades. However, Sahota points out: “With the emergence of big data technologies and advanced analytics, we are noticing that insurance companies are increasingly looking to use richer data sets comprising of their own proprietary data sets and public data sets to better understand risks or, in conjunction with actuarial and data science teams, identify niche markets that would bolster their portfolio. With the increased processing power and heightened configurability of analytics tools, the speed at which insurers and brokers can aggregate, consume and analyse data to inform their front office staff is increasing almost exponentially.”
In addition to processing and analysing data better, there has been increased investment in technology to support advanced (often predictive) analytics. The space where this has been most noticeable in recent years is cat modelling, with insurers and brokers using technology to better understand the exposure of their portfolio and estimate indemnity exposure should an event occur. Similarly, technology is also being used to help the compliance side of things too, bringing data together to gain a clearer picture and detailed reporting back to regulators.
Across most sectors, the last decade has seen a huge shift towards digital channels and marketplaces. Although there is still a prevalence of direct engagement between insurers and brokers in the commercial insurance arena – particularly when it comes to the larger, complex risks – there has been a noticeable investment and shift towards using digital channels to engage with a wider marketplace more quickly and effectively. Sahota believes the use of broker marketplaces or ‘quote and bind’ tools are also enabling initial assessment and decision making on binding risks to be increasingly automated. “This is a key area for growth not only because it reduces cost and increases speed to do business, but it also makes entering new markets quicker and more cost effective.
“The main challenge at this point is that investment is often made in developing the front end channel to market or marketplace platform, but then the insurers or brokers struggle with integrating the front-end channel with the core business systems. With some of the emerging technologies it is becoming increasing possible to integrate systems (both legacy and contemporary) such that products can be easily created and taken to market, and that potentially brokers can customise and sell products through a digital channel and require little or no involvement from the insurer to be able to approve and bind that business. This would not only make the value chain more effective, but would also provide the basis for more bespoke insurance products. Many insurers have started to look at this, but given the often disparate and at times archaic legacy technology landscape, getting to this point is no mean feat and will possibly take two to five years to achieve, but this is one area where InsurTech’s and new technologies could help to accelerate this movement.”
So what is the outlook for further InsurTech development and how will the industry need to adapt to the related changes, challenges and risks that lie ahead? “There is a second wave coming,” suggests Sahota. “The first wave has not necessarily disrupted the market – certainly not in the commercial space; but it has helped to educate the industry on what is coming. The next wave will come because the insured and ultimately all those within the insurance value chain are so integrated with technology now (personally and professionally) that they need insurance and insurance services to move into the digital era to integrate with their digital mode of operating and lifestyle.
“Although regulation of the market is increasing, the barriers to entry are dropping. If this disruption and transformation is not driven from inside the market by working collaboratively with InsurTechs and investing in both the technological and business changes required to become digital businesses, technology companies and capitally charged digital insurance companies will start to eat the [insurance industry’s] lunch.”
Looking ahead, there is a general sense that InsurTech could hold the key to tackling some of the industry’s current and future challenges head-on. “The industry has realised that to remain competitive and truly leverage technology, it will have to partner with InsurTech start-ups,” says XL Catlin’s Branch. “They have the nimbleness, creativity and freedom required to innovate but often need either funding, mentorship or underwriting capacity, which the insurance industry can provide. For insurers, partnering with InsurTech start-ups and working closely with the companies that are developing the technology of tomorrow means that they can become enablers rather than followers. Being involved at the very early stage of a new technology allows us to be part of the innovation process from the inception.”
To understand where further Insurtech development could lead – and how the industry may need to adapt to the changes, challenges and risks that lie ahead – it is worth considering where things have already come from in a relatively short space of time. “InsurTech started in the personal lines space with a focus on improving the customer experience,” Branch explains. “There was a transition into small commercial lines which have many of the same characteristics. More recently, we’ve seen an emergence of innovation in data and analytics ventures that are focused on helping large commercial insurers. We are seeing an increase in the insurance experience of InsurTech teams – this is a positive trend as it means start-ups will begin to address more complex aspects of the industry and cater to the large complex risk space. Ultimately, I think we will see that – just as for personal lines – the focus will shift from purely transactional innovations to innovations that create better outcomes for clients.”
As technology continues to develop, new propositions and offers will be developed, delivered through new channels to market. Tom Woolgrove, chief executive officer of Premium Credit, says the outlook is positive as it will deliver improvements for customers. As regulation continues to evolve, and IT and cybersecurity continuing to be a key strategic risk, any technology development should meet evolving customer requirements, while also meeting strategic and business needs: “What is critical is that the technology and change teams are integrated into the business, with strong joint working shaping the future development, delivery and adoption of change.”
According to one industry commentator, InsurTech is in the same place now as the mobile phone industry was in 2000, with its future equally as unimaginable at the time.
“Nobody knows exactly what the winning proposition will exactly look like,” comments Dietmar Kottmann, partner at Oliver Wyman. “There is clearly a trend towards putting more than [just] a phone into the hands of the consumer, but it was unclear what it would actually look like and it took until the iPhone was invented in 2007 to really deliver the promise of having more than ‘just’ a phone in a compelling way. Insurers can try to become the Apple of the insurance industry. Doing so means to select one or two of the big trends and making an organisational bet on that trend. If an insurer is not willing to make such a large bet, the minimum it should do today is to increase its organisational agility and digital savviness.
This strategy will not make it ‘invent the iPhone’, but it could make it nimble enough to benefit from such inventions which are likely to come – just like Samsung or Google have benefited from the iPhone.”
This article was published in the July 2017 issue of CIR Magazine.
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