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Insurtech investment has been increasing apace. Rather than fight the potential disruptors, re/insurers are being encouraged to pursue ‘open architecture innovation’ and collaborate with startups to achieve new industry growth, according to Paul Mang and Parr Schoolman of Aon’s Analytics team.
In its 2017 Global Insurance Market Opportunities (GIMO) report, Aon put forth the idea that insurtech could actually be an enabler rather than a disruptor of the traditional insurance model. The firm believes that the fast-growing entrepreneurial insurtech segment could have a more supportive role for insurers than previously anticipated, through what Aon terms ‘open architecture innovation’.
The practice of open architecture innovation would involve established organisations collaborating with insurtech in a framework that has both standards that enable scalable solutions for clients, and the flexibility that encourages entrepreneurial innovation.
Looking at the growth of insurtech to date, the traditional insurance industry has been relatively slow to embrace digital technology compared with other industries, and that reticence has opened a window of opportunity for entrepreneurs to deploy digital technology to improve the customer experience through a host of startup companies.
These new companies are using telematics, connected devices, and mobile technology in personal lines and, increasingly, in commercial lines as well. This has allowed the startups not only to provide more effective solutions, but also to continuously improve them through the collection and analysis of data.
According to Aon research, the insurtech space has received some $14 billion in cumulative investments across more than 550 startup companies, with incumbent insurers providing some of this capital. These firms have business models or innovative technologies focused on extracting savings and efficiencies from the current industry model, and addressing changing customer preferences and demands. They typically focus on either property and casualty, or the life and health sectors.
In monitoring their activity, there are consistent themes developing regarding which parts of the insurance value chain will most likely be affected within those sectors.
A new way to connect
More than 55 percent of startups are seeking to change how customers interact with insurance companies and purchase products. According to a study by Accenture, 40 percent of consumers are unhappy with their coverage and are willing to switch to a new service provider.
The startups are building consumer-centric online marketplaces where individuals can easily receive multiple insurance quotes from a single point of contact. They are also looking to redefine the products consumers are buying. Examples include:
B2C insurance marketplace and B2B digital brokers: These models offer online or mobile applications to provide a single point of contact for customers to get multiple insurance quotes. This space is crowded: there are more than 100 companies, such as Zhong An, China’s online-only P&C insurer; Goji, an online insurance agency that lets consumers search for personal coverage; CoverHound, a B2C price comparison platform for consumers to shop for auto insurance; Oscar, a health insurance company; Insureon, a B2B online broker for small business insurance; and SimplyInsured, a group health insurance broker for small businesses.
Health navigators: These companies seek to offer participants ways to engage in, and navigate through the healthcare system—from benefits enrolment to getting and staying healthy to ultimately finding the right care with good information. More than 140 companies span the value chain, such as Jiff, a digital navigation platform that offers incentives to employees who use the solution that creates most value; Welltok, a health optimisation platform; Accolade, a late-stage consumer healthcare engagement company; and Omada Health, a community-based platform providing online behaviour change programmes.
Affinity/peer-to-peer: To reinvent the traditional insurance model, startups are creating a risk-sharing network of like-minded individuals. This category has about 40 companies such as Friendsurance, a Germany-based firm that allows groups of people to pool insurance premiums and offers annual no-claims rewards, using social networks to bring customers together; and Bandboo, a recent Singapore-based startup leveraging blockchain technology for self-managing communities to pool risk.
Microduration coverage: These products feature on-demand insurance sold for a defined period of time. Players include Trov, a platform to provide insurance for individual items; and Slice, insurance for Uber and Lyft drivers. Cuvva insures drivers on a short-term basis on any vehicle. In an attempt to accommodate the growing trend of people sharing rather than owning vehicles, Cuvva provides drivers with coverage for only the hour(s) or days that they require it.
Using the technology
In addition to the focus on the consumer, other startups are harnessing technology, big data, and machine learning to create insurance-specific solutions in a number of areas:
Telematics/Internet of Things (IoT): Companies are seeking to use information and communications technology to change the basis for underwriting and pricing of risk, as well as provide continuous monitoring that enables customers to mitigate exposure to losses before they happen. Examples include Zubie, a connected auto hardware device and free app that provides real-time location; and HumanAPI, a healthcare IoT platform that aggregates, normalises, and stores data from multiple sensors.
Neos is a company that uses connected devices to monitor the home for break-ins, fires, and leaks, and also provides an insurance policy if a loss occurs. With the financial backing of numerous insurers, Neos has been able to provide a product that isn’t just bought and forgotten until a claim arises. Instead, using the combination of connected devices (monitored on mobile devices) and insurance coverage, the customer experience has become a continuous engagement that addresses both loss prevention and risk transfer.
Artificial intelligence/machine learning/workflow technologies: Businesses are using advanced analytics to speed workflow processing and claims handling to make better decisions. Examples include DataRobot, a machine learning platform that can support the development of predictive models; and Snapsheet, which provides a mobile phone-based claims solution for auto insurers that streamlines the process for customers to manage auto repair estimates and bidding.
AI is another technology that is playing more of a role in better understanding and servicing clients. Companies such as Lemonade are using chatbots, a form of AI that simulates a conversation with human users to replace lengthy forms, which arguably improves the customer experience. When a Lemonade client makes a claim, AI is used to check if the claim is fraudulent. While many of the startups are focused primarily on insurance, several companies in related industries have developed products and solutions that have applicability to the insurance sector.
Geospatial imagery technologies initially designed for hedge funds, retail, and agriculture are disrupting insurance. Orbital Insights, for example, uses satellite imagery for retail, agriculture, and property insurance. Companies such as Pypestream, which deploys chatbots and natural language processing to automate and simplify call centre processes, are beginning to apply these solutions to insurance. Enterprises such as Airware are exploring how drones can be used to support insurance underwriting and claims activities.
Notwithstanding the innovation to date, there is much still to come, for example insurance marketplaces, to name one area, where comparisons are based on price. The challenge here is to extend to include comparisons of coverage (actual cash value vs replacement cost value, items excluded, etc) in a way that doesn’t detract from the simplified user experience already developed.
Funding for these insurtech companies is coming from four sources: angel/seed investors, generalist/tech venture capital funds (for example, Andreessen Horowitz, GV, and Sequoia), venture capital funds concentrated in insurtech and fintech (such as Arbor Ventures, Peate Ventures, FinTech Collective, and Manchester Story), and incumbent insurance companies.
The pace of change in the insurance industry is accelerating—from how customers purchase coverage, to what information is available to evaluate risk, to how capital providers engage. The pressure on insurers to innovate is clearly growing, and capital is flowing into the insurance sector as investors see an opportunity to disrupt the more than $ 5 trillion marketplace.
It’s essential for incumbents to closely monitor the insurtech startup space, and be ready to invest when they identify a promising technology or business model.
Aon’s 2017 Global Insurance Market Opportunities report can be found at http://aon.io/2vMRrBC
Paul Mang is chief executive officer of Aon Analytics. He can be contacted at: firstname.lastname@example.org
Parr Schoolman is senior managing director within Aon Benfield Analytics. He can be contacted at: email@example.com
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