2020 Predictions: Top 4 developments in insurtech

Underwriting in commercial lines will be more effective

A changing climate will lead to an increase in extreme weather events and a substantial national threat level and high levels of political and economic uncertainty will make it harder to calculate risk and therefore guarantee profitability in 2020. Insurance executives are going to wake up to the fact that underwriting is not all about efficiency. Yes, efficiency is important – the faster the turnaround, the better the chance of winning. Nonetheless, of equal importance is the effectiveness of the underwriter. AI and machine learning will be used to improve algorithms and therefore effectiveness. This will help insurers prioritise which policies make the most business sense to underwrite, in turn allowing them to strike the balance between efficiently winning customers and effectively achieving a profitable portfolio mix for the year.

Artificial intelligence for mass personalisation

AI will be invaluable to the mass personalisation of pricing in 2020. This is because it helps traditional insurers stand a chance of competing with the start-up and large insurtechs offering microproducts. 2019 Pega research found customer satisfaction with insurance companies is declining and that AI can improve the relevance and attraction of the customer experience and enhance brand loyalty/retention. However, insurers will have to tread very carefully when using AI to price policies, to avoid discrimination based on demographics such as race and sex. Even pricing a policy so high someone can’t buy it rather than turning them down for insurance could be taken as discrimination. Using personalised, transparent rather than opaque AI is one way insurers can avoid prejudice, as transparent AI must fully explain its decision-making process.

Senior leaders truly consider what modern tech can do

A lot of managers in insurance don’t fully understand what can be done with modern technology and are not being materially affected by what’s happening outside the insurance industry yet. Once that starts to hit them, they’ll start to educate themselves and take action. Legacy thinking will remain a big issue, as legacy IT manifests itself from legacy thinking. Lots of insurers are still thinking they need to renew their existing software package as opposed to deciding to build themselves a platform which can constantly evolve and will never become outdated. The big motivator for this is cash – it’s only when retention levels start to decline, and revenues and profitability takes a hit that insurers start to ask serious questions and figure out the solutions. With Lloyd’s of London noting in its H1 2019 financial results that it will continue to focus on performance management to deliver sustainable, profitable growth, we will see senior executives genuinely seek to understand how technology can help them achieve this in 2020.

The growth of IoT will see insurers get data-savvy

Next year the number of internet-connected devices will grow extensively, the data from which will help insurers build more accurate models and algorithms for predicting event-related claims like flooding or burglaries. This will mean insurers participating more in risk avoidance, warning customers of threats before they occur, managing risks and thus avoid claims happening. The more data available, the more likely it is insurers will calculate the risk properly and avoid a worst-case scenario. For example, data from motion detectors and CCTV can be used in conjunction with each other to understand whether someone walking around an office at 3 am is the security guard or someone else not authorised to be there, or if the movement is water cascading out of a bathroom. You can move towards risk avoidance, protecting assets and avoiding claims. This will be a win-win for both customers and insurers.

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