OpinionInsurtech: the latest industry innovations and improvements
Opinion
Insurtech: the latest industry innovations and improvements
“In spite of the setback for some of the insurtechs and digital insurance carriers, opportunity remains strong,” writes Diyaa Shridi.
Tech-driven innovation is fundamentally reshaping the insurance industry. Emerging capabilities including telematics, artificial intelligence, machine learning, and automation have transformed nearly every aspect of the insurance value chain and continue to create new and improved omnichannel experiences for customers.
In recent years, the approach among institutional insurance companies has changed, and following the entry of high-tech companies into the field of smartphones, the insurtech industry has grown with several innovative startups and has changed the habits of many policyholders.
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Diyaa Shridi is the CTO & Head of Product Incubation at Sompo Digital Lab TLV.
(Photo: Fabian Koldorf)
In addition, COVID-19 forced insurance companies to accelerate investment in digital innovation and implement creative methods to fight for customer retention and the recruitment of new customers.
Embedded Insurance
Embedded insurance is seen as creating a faster and more personalized experience, thus more appealing for millennials and Zoomers. During a CEO chat, Next Insurance reported that a fifth of its revenue now comes from embedded products in addition to Hippo's report that 50% of its business comes from embedded partnerships.
In spite of many experts' belief that embedded insurance has enormous potential, Aperture's recent report predicts that more than $5 trillion of insurance payments will be distributed by non-agents and brokers within 10 years. This trend may have some repercussions for agents and brokers.
Cyber Insurance
Many experts find that capacity for cyber insurance products has increased from previous quarters due to larger market competition and a slowdown of ransomware attacks.
The CIAB Q2 Commercial P/C Market Index reveals that, while the cyber insurance market remains constrained, premium growth for cyber insurance products peaked in Q4 2021 (34.3% quarter-over-quarter increase) and rise slowed down, (26.8% quarter-over-quarter increase for Q2 2022).
The increase in market capacity seems to have pushed many insurance players to differentiate themselves. Cyber MGAs such as At-Bay, Coalition, and Cowbell have or intend to transition into full-stack insurance carriers, citing “greater flexibility and potential for innovation.”
Automation
Work automation continues to be an appealing tech segment for carriers, as evident by the large number of exhibitors and huge interest from insurance carriers. I’ve noticed great interest in automating damage assessment following a natural event or malfunction of equipment. Assured Insurance Technologies, for example, offers a platform for claims intelligence based on structured data. This platform handles claims end-to-end by offering solutions for FNOL, AI assistance for adjusting, and CAT preventive service for automated rapid response to NAT/CAT events. HyperScience, too, offers automated extraction and classification of claims data processing.
Insurtech Funding
The negative status of stock markets globally had a large impact on private-market funding for Insurtechs. Thus, the S&P 500 went down ~23% in 2022. Based on Leader’s Edge interviews with venture capital representatives, valuations are down and available capital for funding is harder to obtain.
Brian McLoughlin, Partner and co-founder at MTech Capital, a venture capital firm that invests in companies in the InsurTech and FinTech space, linked it to the internet bubble of 1999–2000. He also mentioned that available capital during COVID drove companies to raise more money than they thought possible, resulting in valuation multiples increasing too rapidly. The current market created a healthier environment for startups and investors. Insurtech entrepreneurs are now seeking to show efficiencies in their burn rate and focus more on profitability to conserve capital.
The takeaway for Insurtechs is simple: If you think the market will continue to decline, raise capital now. If you think a rebound is coming, wait.
Natural Catastrophe Risk
Weather-related risks are hot news, and so is the desperate need to decrease insurance protection gaps—especially for flood products—as losses in 2021 alone amounted to $20 billion (compared to $80 billion between 2011 and 2020). Munich Re estimated that just 15% of U.S. homeowners have flood insurance.
Improving education on flood risks remains at the forefront of insurers’ efforts as they target homeowners and business owners, realtors, and builders. Embedded insurance products—bundling homeowners insurance with the purchase of a house, could help improve flood coverage.
As for insurance shortfalls, Swiss Re noted a $1.2 trillion protection gap from three risk areas—natural catastrophes, mortality, and healthcare, all could be saved through embedded insurance products.
Big Data
Data and analytics tracking, targeting improving risk reduction, is a vision shared by providers across the risk and insurance ecosystem. Incentivizing preferred consumer behavior isn’t new to the insurance industry, which already offers discounts on auto insurance for accident-free and safe drivers.
A central theme is how big data and analytics could help foster a culture of transparency and innovation through partnerships. By combining internal and external data, companies can see new patterns through the power of data analytics.
Big data and risk reduction go hand-in-hand when carriers have the tools and technology to analyze millions of data points they accumulated. Insurtechs are filling this technology gap to help carriers manage and analyze, data to incentivize risk reduction and improve outcomes.
In spite of the setback for some of the insurtechs and digital insurance carriers, opportunity remains strong. Carriers will still seek to move away from manual processes using automation and better utilization of internal and external data. Insurtech companies that target those pains will be well-positioned for traction and scale. As for the next year, we expect more carriers, distributors, and insurtechs to become more innovative in the tools and services they have to offer.
Diyaa Shridi is the CTO & Head of Product Incubation at Sompo Digital Lab TLV
