From grudge to nudge: Tech firms help insurers shift gearsPosted On: Sep. 18, 2017 8:00 AM CST
(Reuters) — Insurers are counting on real-time technology to help them cut back payouts, from a system warning ships of nearby pirates to an app offering to buy sleepy drivers a coffee on the highway.
The lure of products promising to save on claims in a highly competitive market has led to a leap in investment in "insurtech" in Europe to more than $400 million in the first half of 2017, from just $50 million a year ago.
The aim is to move insurance from a "grudge" purchase, when the only interaction with customers is after something has gone wrong, to a "nudge" product, encouraging safer behavior.
While the idea is not entirely new, the technology is making it more prevalent, prompting warnings from regulators about the risk of discrimination.
Insurers say they can navigate those hazards as they explore blockchain — tamper-proof databases shared and updated across a network; "big data," analyzing reams of information for trends; and the artificial intelligence technology behind driverless cars, drones and voice-recognition software.
"The new technologies have the potential to change the game (from compensation to risk mitigation),” said Simon Tottman, head of insurance research, U.K. & Ireland, for consultants Accenture.
The biggest surge of insurtech investment was in Britain, where, despite the vote to leave the European Union, it hit $279 million in the six months to end-June from $9 million a year earlier, analysis by Accenture of data from CB Insights showed.
In the rest of Europe, investment jumped to $134 million from $37 million, and some insurers are also forming partnerships with insurtech firms.
A focus in Britain on analysis of social media to assess the probability of claims has fueled concerns about data security. British motor insurer Admiral had to abandon plans last year to take data from Facebook Inc. to set insurance premiums following objections by the social media firm.
The Federation of German Consumer Organizations (VZBV) sees risks from big data in personal insurance outweighing benefits, fearing it will shift insurance from spreading risk collectively to being an arbiter of social norms.
New European Union data protection legislation coming into force in 2018 should strengthen consumer rights, according to a discussion paper published by European supervisory authorities in December 2016, which warned financial institutions to consider the legal dimensions of processing social media data.
European regulators also worry about social exclusion and are checking whether data is being used in a way that makes insurance too expensive for those regarded as a higher risk.
Andrew Brem, chief digital officer at U.K. insurer Aviva P.L.C., which is aiming to invest £100 million ($136 million) over the next few years in insurtech startups, says the aim is only to promote less risky behavior.
"In our sector, technology can be very powerful in helping people make smarter choices,” said Mr. Brem, whose company has an insurtech-focused office in a converted garage in London’s so-called Silicon Roundabout area in the east of the city.
Health app Tictrac, due to start working with Aviva later this year, tracks exercise, sleep patterns and the weight of employees in corporate health care, offering tips and setting challenges to help prevent the onset of costly conditions.
"Companies don't get any access to their employees' data," said Martin Blinder, Tictrac CEO. "They're able to see aggregated, anonymized utilization trends."
Cloud, blockchain, apps
The largest U.K. investment this year was in the domestically focused insurer Gryphon, which is awaiting regulatory approval to offer tailored life, critical illness and income protection insurance via financial advisers using cloud-based technology.
Telematics — black boxes in cars which enable insurers to check customers' driving and reward safer habits — have been in use for a while.
Anton Ossip, CEO of Discovery Insure, owned by Johannesburg-based financial services firm Discovery Ltd., said accident claims had dropped more than 11% since it began using customers' driving information in pricing in 2011.
Kenny Leitch, global connected insurance director at U.K. insurer RSA said it had paid nearly £2 million in cash rewards to young drivers for safe driving using telematics.
Insurtech firms are now looking at how to use telematics in real time to prevent accidents. For example, said Mr. Tottman, an app may suggest a coffee at a service station at the insurer's expense if it detects tiredness in a driver's voice.
Consultancy EY, data security firm Guardtime, Microsoft Corp. and ship operator Maersk are building the first blockchain-based marine insurance platform.
"The shared ledger can alert a ship in Somali waters that it’s approaching an area where pirates have just hijacked another ship," said Shaun Crawford, global insurance leader at EY.
Axa S.A. also has a strategic fund investing in insurtech startups and investments by Allianz S.E.'s €430 million ($513 million) fund include U.S. firm Lemonade, a digital peer-to-peer insurer that uses artificial intelligence and behavioral economics.
The U.S. pulled in $4.4 billion in insurtech investment between 2010 and 2016, compared with $1.3 billion in the Asia-Pacific region and $300 million in Europe, according to Accenture's analysis of CB Insights data.
More than half the 100-plus insurers surveyed by consultants Capgemini said they wanted to partner with insurtech firms, according to its annual World Insurance Report published last week with trade body Efma.
Murray Raisbeck, global co-head of fintech at consultants KPMG said some inroads by insurers into technology were still largely a public relations exercise, but insurtech was becoming a "permanent feature" of the market.