Insurtech will continue to transform the risk transfer industry. But to understand how that will happen it is important to consider how the industry has changed in other important ways up to this point, as Natalie Neto and Peter Dunlop, partners at Walkers (Bermuda), tell Bermuda:Re+ILS.
To properly understand just how much insurtech is shaping the Bermudian reinsurance landscape, it is important to consider the extent to which the industry has changed in the past 25 years, says Peter Dunlop, partner in the re/insurance practice at Walkers. He says that several key things have changed in that time.
First, the industry has achieved contractual certainty, which gives the industry and policyholders the comfort to properly understand the terms on which coverages are underwritten. This has reduced the number and nature of re/insurance disputes.
Second, since the financial crisis of 2008, with lower investment yields available, the reinsurance industry has been forced to strive concertedly to achieve combined ratios under 100 percent and, therefore, consistent underwriting profits and reduced expenses. That is no easy task.
Finally, in Bermuda in particular, the insurance-linked securities (ILS) industry has exploded, offering insurers access to new third party capital with the associated diversified investment returns for investors and a lower cost but efficient risk transfer platform with varying alternative loss triggers for insurers.
“Against that background it is plain to see that, above all, insurtech in Bermuda delivers the industry’s continued efforts to deliver products more efficiently, to a wider customer base, at lower cost with a greater return on quality data,” says Natalie Neto, partner in the corporate practice at Walkers.
“Insurtech will continue to cause creative destruction of existing industry processes,” adds Dunlop.
Neto says that Bermuda’s re/insurance companies and intermediaries have gone through the process of evaluating how they are currently using, and how they need to deploy, technology and innovation in their own processes and customer delivery.
“There is now a very clear expectation of digitisation of processes, from submission to placement to claims, from the customer end point as more people become used to the capabilities and use cases of digital ledger and artificial intelligence (AI) technologies: customers require a more customised experience and increased use of the internet of things (IoT),” she adds.
“As re/insurers reach more customers, more efficiently, they are able to capture and analyse data from a greater variety of sources in real time meaning that model inputs are higher quality and allow for a shift away from a protection-based model towards a preventive-based model.”
Six areas for use
In terms of the opportunities that insurtech can deliver, Neto and Dunlop identify six main areas where re/insurers can use insurtech to enhance their operations.
The first is around the automation of core processes for re/insurers, brokers, agents and other intermediaries—throughout the lifecycle of the risk—at greatly reduced expense and in real time, with complete transparency for all parties to the deal.
A second is through the use of apps on customer devices, which allow for the sale of products to a wider, more diverse customer base.
“In addition, those apps allow for more customised risk transfer solutions for the end customer: not just personal lines such as auto and travel insurance but also commercial lines. We’ve seen only the start to what is the new normal,” Dunlop says.
Third, insurtech can mean the better comprehension of risk from richer data leading to the creation of innovative risk products.
Fourth, insurtech can allow speedier, more efficient processes for regulatory and compliance.
Fifth, it can help with cost reduction and improved efficiency—driving competitive advantage and eliminating human underwriting of more standard, non-complex/bespoke lines of business.
Last is its ability to capture the power of data. “Insurance processes which have always been data-driven are now able to deploy AI to help understand and assess risk on a deeper level as well as behavioural analytics to help understand customer trends and reward ‘good’ behaviour, eg, reduction of car premiums for ‘good’ drivers or lower the cost of ski trip insurance for ‘better/more careful’ skiers,” Dunlop explains.
As for the future direction of travel for insurtech and how it will continue to change the industry, Neto says she hopes to see more insurance startups securing the backing of venture capital and other investors who can provide the expertise as well as financial investment to stimulate the sector’s growth.
“I believe that, building off the success of 2019, we expect many of the larger fintech and crypto exchanges to establish captives or commercial insurers and to seek to lay off some of that risk to the reinsurance sector.
“We also expect more use of Bermuda’s facilitative but responsible framework for insurtech companies looking for a jurisdiction to launch their products collaboratively with long-term growth goals,” she concludes.
Natalie Neto, Peter Dunlop, Walkers, Insurtech