Where Fear and Opportunity Meet: The Momentum of Insurtech

By Steven Jones, Managing Director - Global InsurTech Client Services Lead, Guy Carpenter

Steven Jones, Managing Director - Global InsurTech Client Services Lead, Guy Carpenter

Fear of disruption was pervasive early in the “insurtech” era, stemming from indications that major technology companies were entering the sector, such as “Googlezilla” in 2014; Apple’s telematics focused patent activity, and more recently, Amazon’s exploration of insurance aggregator opportunities in the United Kingdom. Other disruptive trends in the industry have affected specific coverage lines – widely adopted natural catastrophe models that enhance the ability of alternative capital to enter the market impacted property insurance and comparison sites and aggregators impacted personal lines auto pricing.

More current and pressing challenges to incumbency stem from new entrants such as Metromile’s usage-based telematics insurance platform, Lemonade’s big-data powered digital experience for homeowners and renters coverages,  and an innovative personal auto telematics-enabled underwriting process at Root Insurance. While the new direct-to-consumer companies were initially written off by carriers, citing woefully unprofitable combined ratios, these companies are trending positively and could soon see underwriting profits. Given the thousands of companies providing technology products and services that have entered the market in the last five years, the focus is on partnerships in various forms. Incumbents are utilizing advanced data, analytics, and technology capabilities in software and platform-as-a-service (PaaS) models to accelerate their own business and technology roadmaps. Insurance carriers are deploying their own insurance-as-a-service platforms in novel distribution models, such as AXA’s offering of “end-to-end transactional application programming interfaces” (APIs).

"It is increasingly clear that successful companies will be those who can pivot and create a substantially faster pace of change through more efficient delivery strategies, both acquired and instituted within their own organizations"

Carriers and brokers are increasing their interest in joining industry alliances, effectively collaborating and pooling resources to advance their own internal innovation programs, such as The Institutes Risk Stream Collaborative, which is focused on assessing blockchain use cases. These are healthy developments and should continue to assist traditional carriers in enhancing their policyholder offerings.

Regardless of which trend has staying power or from where disruption might manifest, from technology service providers to new direct to consumer carriers and managing general agents, the message is clear, innovation is occurring at an ever increasing pace.

Many factors came together in the last few years to pave the way for this accelerating pace of innovation – starting with shifts in consumer needs and expectations that range from changes in lifestyles and asset accumulation, to the digital experiences necessary in nearly any business-to-customer interaction. Digital and information technology(IT) teams are building better technology solutions, such as real-time processing enabled by cheap computation and cheaper storage, cloud-hosted environments, improved modular architecture concepts of APIs and service-oriented architectures, advanced data and analytics architectures, and the use of open source platforms in ways we thought were unthinkable even just 5 years ago. And, with wide adoption of agile software development methodologies, small and efficient cross-functional business and IT teams are building new capabilities at speeds to which we are unaccustomed in the insurance industry.

For example, Hippo Insurance deployed its own policy and claims core systems in 6 months  following an underwhelming evaluation of marketplace “legacy” policy administration system solutions. Slice Labs, a direct-to-consumer startup, offers white-labeled PaaS to traditional carriers looking to outsource their core system processing, and can develop and launch new products in a matter of weeks, not months or years, as is more typical in incumbent environments. Lastly, new startups using machine-learning algorithms, with adequate data, can train new models in minutes. These new companies leverage agile development concepts of Scrum, sprints and minimum viable products as standard operating procedures, allowing them to develop, prototype and advance to new capabilities in a matter of days or weeks. By comparison, as typical insurance agents, brokers and carriers experiment with faster delivery approaches, they mostly operate on more traditional delivery models, and are not yet executing at the speed of companies established in the previous three to five years.

In the new “digital” insurance industry, a successful path forward may be equal parts collaborating with the advancing insurtech ecosystem and getting substantially better at your own ability to execute on internal business and technology transformation agendas. Successful companies will be those that are able to identify the gaps that can be filled through external relationships, but are grounded in a future vision for their own company, and knowledge of the existing assets that will help them get there. Successful companies will be increasing speed to market through new product and services from external providers and internally through improvements to their own organizational model, operational efficiency, culture, and change management efforts. Successful companies will have substantially upgraded their own internal technical, application and data architectures to more easily integrate external platforms. Finally, successful companies will be as focused on the talent of the insurtech partners as they are on building, cultivating, and acquiring their own internal talent as a counterpart to those providers.

No one can predict with any certainty what the future will hold for the industry and how insurtech will change it. However, it is increasingly clear that successful companies will be those who can pivot and create a substantially faster pace of change through more efficient delivery strategies, both acquired and instituted within their own organizations.

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