The future of insurtech

The insurance sector is changing due to emerging risks, shifting demographics, and new entrants, forcing traditional players to adapt. And technology is the primary catalyst that is transforming the insurance industry.

That is the key takeaway of a report by PwC: Insurtech Insights: How insurtechs are transforming re/insurers. PwC, which unveiled the report ahead of the renewals season for reinsurance, detailed in the report a number of ways it sees technological innovation impacting the industry.

Arthur Wightman, PwC Bermuda leader, said: “More insurance CEOs are concerned about the pace of technological change (85 percent) than leaders in almost any other industry.

“Technological advances are changing business and operating models, which is challenging to an industry that’s accustomed to slow evolution rather than rapid transformation.

“As our Insurtech Insights report finds, getting up to speed demands a clear strategy and roadmap for decommissioning legacy systems, accelerating automation, and laying the platform for the next wave of transformation.

“Keeping pace demands a readiness to bring innovation out of the fringes and into the mainstream of the organisation,” he added.

First, the report describes how insurtechs are transforming the existing value chain. “Transformation of the value chain is through customer engagement or the development of digital distribution platforms. In many cases, data-driven process optimisation is having a large impact as new firms seek to harness technology to drive productivity and cost efficiencies through data analytics, artificial intelligence, blockchain, or other emerging technologies,” the report states.

It describes how insurtechs are enabling new capabilities by harnessing emerging technologies and products to provide 
re/insurers with new value-added competencies such as the ability to assess claims through drone inspections, dramatically decreasing claims processing times.

Insurtechs are innovating new products, the report notes. It explains how the emergence of new products such as cyber insurance, or usage-based insurance, is providing opportunities to insurtechs and industry incumbents alike, to capitalise on these new, fast growing markets.

“A plethora of startups are now working with and against insurers to develop new products, or assist in underwriting these new risks,” it states.

Finally, insurtechs are breaking boundaries beyond insurance, the report said, explaining that insurtechs are also supporting insurers to innovate beyond the existing value chain into new industries, providing access to new customers and markets.

“This trend is evidenced in our recent Breaking Boundaries report released in conjunction with Startupbootcamp InsurTech in London. The majority of new startups were beyond insurance, ie, focused on developing products that were either in a different industry, or industry-agnostic, but still with a large value-add to the insurance industry,” the report said.

Transforming the value chain

The report touched on how insurtechs are transforming the existing value chain in a number of ways, from reinventing customer engagement and experience, to using data-driven processes to optimise operating models creating expense and productivity efficiencies.

It suggested that technology is reimagining the core market and product for insurers by reaching the un(der)insured, finding emerging solutions for new markets, and by usage or behaviour-based personalised insurance.

It is redesigning the customer experience through online aggregation and comparison, via personalised customer engagement platforms, and through developing new models of holistic advice (ie, robotic/artificial intelligence [AI]), the report suggested.

Finally, it is reinventing the use of data and analytics by using remote data capture and analysis, through the quantification of emerging risks and the emergence of blockchain, AI, and other technologies—all while also reconstructing the operating and expense structure of insurers, the report said.

The report explained how the importance of cloud-based platforms and on-demand infrastructure facilities is growing, noting that more than 70 percent of traditional re/insurers use cloud-based solutions now but only 10 percent run most of their digital infrastructure using the cloud.

The report cited several case studies of best practice in this field, including XL Catlin using Slice Labs’ insurance cloud services platform and HCS Capital and Markel partnering on Figo Pet Insurance, which offers an integrated cloud-based pet platform with customisable healthcare, enabling pet owners to manage their pets’ lives.

The report went on to suggest that the emergence of new capabilities fundamentally changes not only the existing value chain but the industry overall, as more incumbents adopt these capabilities through investments or partnerships to compete effectively.

“Capabilities are new technologies utilised to provide value-add to the existing value chain whether through increased efficiency or ability to execute new tasks or analyses,” the report said.

It gave several examples of this including the use of aerial drones after weather catastrophes to assess losses, enabling insurers to process claims significantly faster than before; advances in data analytics and catastrophe modelling through using weather, atmospheric, or maritime data to better underwrite risk; mobile app-based technology for claims adjusting including functionality to upload photos; and using AI to answer customer queries, process claims, or to better understand and compare insurance policy language.

In a section on drones and weather analytics, the report noted that as the severity and frequency of natural catastrophes has increased, this has driven demand for innovative solutions. It noted some of the investments and partnerships taking place in this field including XL Catlin investing $16.5 million in Windward, a maritime risk analytics startup; Maiden Re’s $2 million investment in Betterview, a platform that analyses data from drones; and Tokio Marine and WR Berkley investing $17 million into Weather Analytics.

Beyond insurance

The report detailed how insurtech firms are broadening their product offerings beyond insurance, causing a shift to more generalist business models, and cited a number of examples where it can make a big difference to health insurance.

It noted that analysts forecast the global telemedicine market will grow to $79 billion during the period 2018 to 2022. It suggested that growth is driven by increasing adoption of digital health platforms such as mobile health, telehealth, electronic medical records, and other wireless technologies.

It said that wearable healthtech devices can gather vital data—for consumers and underwriters. The report noted that they can provide users with data necessary to make healthy changes in lifestyle, and pre-emptively detect and cure life-threatening diseases.

It suggested that the US eldercare population will become a significant addressable market given that approximately 20 percent of the population will be aged 65 or older by 2030. Currently, 87 percent of adults age 65+ want to remain in their own home as they age, creating a demand for healthtech solutions that permit or support independence, the report noted.

In conclusion, the report notes that, historically, re/insurance transactions were often focused on consolidating or diversifying books of business. With the emergence of insurtech, many re/insurers began to invest in new technologies for fear of ‘missing out’, but often without a strategic plan for the use of technology across the organisation.

“The insurtech industry has continued to mature, technology adoption has become more widespread, and successful use cases have begun to emerge. We are seeing a shift to re/insurers making targeted investments or partnerships to achieve strategic initiatives and augment re/insurers’ capabilities,” the report said.

“Insurtech is also enabling re/insurers to expand beyond insurance into adjacent markets that have value-add to their business models.”

The report discussed four ways insurtech impacts the industry and highlighted key strategic investments and partnerships.

“These have demonstrated the efforts of re/insurers in transforming the existing value chain (through cloud-based platforms), 
unlocking new capabilities (with drone analytics), or creating access to new products or markets (with cybersecurity and healthtech). There are other emerging trends that also merit focus,” the report said.

“Re/insurers are recognising the impact of targeted investments or strategic partnerships which if executed and implemented properly, can unlock meaningful value for their organisations. In order to compete effectively, re/insurers need the right talent, strategy, ability to execute on deals/partnerships, and finally, a viable plan to implement the insurtech’s capability for their organisation.

“We expect those who struggle on these fronts to fall behind their competitors.”

The full report summarised here can be found at: https://www.pwc.com/bermuda. For a deeper discussion, contact Arthur Wightman at arthur.wightman@pwc.com