Research

Insurance Marketplace Realities 2019

InsurTech for risk managers: Evolution in revolutionary times

November 6, 2018

Much has been written and speculated regarding InsurTech, but let’s bring it back to what Insurance Marketplace Realities is all about: How will it affect what you pay for insurance? Here it is in a nutshell. So far, not much. Someday, a lot. In the meantime, here’s what to look for.

For smaller businesses, for whom risk transfer is not so much a strategic question as something to check off the list, the online automation of the insurance purchase is already here, or at least around the corner. It’s about price shopping, convenience and reliability. Think of a small, cute reptile, and how 15 minutes can save you – you get the idea.

For most of our clients, however, risk management is a bit more complicated, and the global value chain of risk transfer is more complex as well.

Technology addresses several aspects of that value chain. Technology is involved in the operational elements of the insurance transaction — the paperwork, as it were, and the transfer of data and information. Technology is involved in the decision making process — we, for example, have a host of insurance line-specific analytic tools and models available now to prove it. Underwriters are using technology to better discern “good” risks from “challenging” risks. Technology is involved in the distribution of risk transfer products, as mentioned above, for smaller, simpler insurance purchases.

At some point there will be price implications at each point technology touches. Operational improvement can lower costs to the point of lower pricing. Decision-making tools directly impact both the structure of your insurance program and how much insurance you may choose to buy — which will surely impact your overall cost of risk. As underwriting becomes ever more sophisticated, prices may decline for good risks but rise for challenging risks. In a broader sense, technological distribution has the potential to disintermediate the process, which could create downward pressure on price.

It’s the last point on disintermediation, and the disruption it implies, that has the attention of many in the discussion of InsurTech. Disruption is certainly the intention of most if not all of venture capital coming into play. It’s important, however, to recognize that much of the technology in the works and on the horizon is not about disrupting the present value chain, but enabling it and improving it. In a recent study of InsurTech investment, we asked investors to characterize the goal of their investments: 9% said disrupting the value chain, 30% said disintermediating customers from incumbents, and 61% said enabling the value chain.

Another useful perspective is to understand that technology comes in many flavors, styles and modes. Here’s one list:

  • The internet: A potential distribution platform.
  • Cloud computing: An avenue for accelerated and integrated data analytics.
  • Telematics: Auto risk and the combination of telecommunications, vehicular technologies, road sensors, instrumentation, wireless communications, etc.
  • AI: Automation and artificial intelligence that will eventually impact the way most business is conducted.
  • Transactional: Blockchain may seem to be already wearing out its buzzword welcome, but in fact, it’s just getting started; we are seeing implementation in the field and undiminished predictions of the efficiencies that could result.

Taking a geopolitical view, some have noted that developing economies are in the process of broadly taking up insurance as a mainstay of business and will be doing so free of legacy insurance cultures and the inertia that can surround those cultures. These economies may also be more primed to accept 21st century technology. We may see some of the testing ground for InsurTech products in various markets around the world.

The auto insurance case is one of the most instructive. As mentioned in the technology list above, telematics are going to change the world of auto risk. This is already happening. To the extent to which technology is changing the way we drive, it’s changing the nature of the risk we’re insuring. To the extent to which the data we can gather about the behavior of drivers and the condition of the vehicles they drive is changing our assessment and understanding of every experience, it’s changing the way the risk is underwritten. As for the broker/advisor, our role will be to help our clients navigate this changing roadmap.

Then there’s self-driving cars and what that does to the whole equation – but we won’t get into that here.

Suffice it to say that all segments of the insurance value chain, insured, insurer and the advisor in between, will be affected by technology. The changes that each experiences will impact the others, all in ways we can’t foresee. Despite the uncertainty, however, we are bullish about our industry’s ability to adapt to change. In fact, we think the image of our industry as stodgy does not fit with historical facts — look at the development of cyber insurance as just one example of our industry’s response to changing times. We are also bullish about the fundamental value proposition of our industry —a global web of risk takers who provide organizations with certainty against risk.

For the insurance buyer, the impact of InsurTech is only gradually being felt. For most in the trenches of insurance, InsurTech represents evolution — evolution in revolutionary times.

The InsurTech evolution also serves as a reminder that it’s our role as the risk advisor to be involved every step of the way, because in the end, it’s not about price, but about value.