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Despite all the attention on insurtechs that focus on personal lines applications, tech startups focused on risk management applications are greater in number and are attracting more funding than nearly any other category. Insurers have been slow to embrace opportunities from insurtech in general and commercial insurance in particular. But that may soon change.
Forward-thinking companies in the insurance industry have been exploring how to leverage new technology to improve engagement with personal lines customers, serve unmet consumer needs and lower costs by driving operational efficiencies.
Much of this movement by insurers originated from a recognition they needed to respond to the digital expectations of personal lines consumers — expectations set by digital experiences with Amazon.com, Netflix, Uber and others. Consumers want the same simple, quick experience as when ordering food, a movie or a car service.
Why should the commercial insurance buyer be any different? After all, many noninsurance organizations are embracing technology to better serve their customers, innovate products and services and use tech to make their operations more efficient. Technology-driven innovation represents an opportunity for commercial insurance buyers — risk managers — to not only define their needs and preferences for insurers but also to get better acquainted with the risk management implications of technology.
What is insurtech?
The insurtech movement arose when tech innovators began to ask how they could resolve various pain points in the insurance market. Many tech innovators looked at some of the archaic, paper-intensive processes and decades-old IT systems in insurance and saw opportunity for improvement. They knew little about insurance, but were free from the constraints of dealing with legacy issues and more willing than incumbents to ask what-if and why-not. To these startups, it was obvious technology could be applied to nearly all parts of the insurance value chain and achieve dramatically better results.
Investors universally agree that the opportunity is huge. Since 2014, more than $20 billion has flowed into the insurtech marketplace, funding startups focused on transforming and improving current insurance processes and products, according to data from Insurance Thought Leadership’s Innovator’s Edge. Some of that investment has come from venture capital firms, some from insurance companies and some from noninsurance tech giants such as Amazon, Google and Microsoft.
Insurers increasingly recognize that to remain relevant and competitive, and to ensure a healthy future, they must improve their ability to creatively apply technology to solve customer needs and pain points, and to create products that unlock new markets. A recent survey of U.S. insurance company executives by ITL and The Institutes found that 70% have a strategy around innovation. Despite this strategic priority, many insurers and reinsurers are struggling to develop the capabilities to meet their goals, and appear uncertain they have the talent, innovation processes and tools to evaluate and take advantage of the array of tech options available.
Let’s get personal
The initial focus of many of the tech innovators was largely on personal lines insurance. It generally is less complex, smaller policy limits are at risk and it was easier to try to address customers’ digital expectations and needs in product lines such as pet insurance, travel insurance and renter’s insurance. Auto insurance, term life insurance and homeowners insurance also became a big target of innovation and technology.
Early applications of technology by insurers willing to explore these opportunities focused on such low-hanging fruit as streamlining customer acquisition through online sales and quote shopping sites, automating and accelerating manual processes from underwriting to claims, analyzing large data sets to more quickly find information and apply it against predetermined rules, and leveraging online and mobile platforms to compare and sell policies.
Some startups went beyond such operational efficiencies to experiment with new forms of on-demand product insurance, new approaches to mutualization called peer-to-peer insurance, embedding insurance within consumer products and usage-based insurance, among others.
Today, startups focused on leveraging technology and inventing applications for risk management are one of the largest categories of insurtechs, both in terms of number of companies (393) and the amount of investment they have attracted ($3.03 billion since 2013). That funding is second only to health insurance-focused insurtechs.
Defining risk management opportunity
A good place to start thinking about how insurtech will be applied to commercial insurance customers is examining elements of the risk management process:
• Risk identification.
• Analysis of exposure to risks.
• Evaluation of risk mitigation options, such as avoidance, transfer or retention of risk.
• Implementation of the chosen options.
• Monitoring of the results and adjusting.
Nearly all of those, but especially risk identification, analysis and monitoring, can be improved through the application of existing technology. Here are just a few examples with application for commercial insurance:
• Artificial intelligence and machine learning, for example, are being used to improve the speed and quality of information analysis, which has applications in risk identification, risk analysis, underwriting, policy wording, reserving, claims and much more. With this technology, there’s no good excuse for policy renewals or something as mundane as policy issuance to take so much time.
• Big data analytics gives risk managers and insurers the ability to combine their own data with other large data sets to quickly analyze information, find previously unknown risk correlations, and make better decisions. The ability of insurers to leverage new capabilities in analytics and data processing speeds puts better risk-adjusted pricing within reach for more companies, for example.
• Drones, geo-imagery and visual processing technologies provide powerful new tools to inspect and analyze property more quickly, more safely and with more data. Pairing the visual output with the ability to analyze the data more quickly opens new opportunities in such areas as hazard identification, property loss prevention and claims reporting.
• Sensors and “internet of things” applications are being widely deployed in many commercial settings to monitor and provide data about property and people. The potential applications for workplace safety of wearables and sensor technologies are huge.
• Autonomous vehicles are not just about private passenger automobiles and ride sharing. Autonomous trucks and vehicle fleets are being commercially developed that will give companies new options to keep supply chains more reliable and drivers safer.
• Blockchain represents a new digital method of recording transactions and events without the time and expense of an intermediary. Blockchain is being applied to manage and track logistics, provide more rapid notification of claims and loss notification, and perhaps most importantly, adds a potentially powerful layer of protection against cyber risks.
With the growth of myriad technologies to generate, capture and analyze data, there is a growing recognition among some in the insurance industry that there is an opportunity for insurers to use their data in new ways, particularly to enhance loss prevention and not just transfer the risk and finance the loss. The new opportunity for insurers is to reduce the frequency and severity of losses by leveraging their data, capital and policies in concert with those companies that building new technologies. They also recognize that new competitors may emerge that are more agile at using this data.
To risk managers, new products and services to support loss prevention would be welcome, and represent a way for insurers to use technology to address their commercial insurance customers’ pain points and challenges.
Better understanding of tech risk
The promise of insurtech is not all rainbows and unicorns. Insurers and risk managers both have a natural tendency to look for risks, liabilities and other adverse outcomes, so they won’t blindly embrace the technology that will ostensibly solve problems. No doubt some are asking questions like:
• What assurances do we have that blockchain is more secure than any other digital transaction, or existing processes?
• How do we know that the information a sensor provides is accurate and reliable?
• Who verifies that artificial intelligence is providing the correct answer?
• How can businesses protect an autonomous vehicle from being hacked?
• Where are tradeoffs in privacy and the security of personal information being made to enjoy more comprehensive capture of data?
These are questions that are worth asking and underscore why risk managers should be part of the conversation to identify, analyze and minimize potential risks associated with the application of any new technology by their organization. To the extent that risk managers can be educated about how tech can be applied to solve business challenges, not just insurance challenges, risk managers will be better positioned to help their organizations innovate.
The point of innovation and new technology is to respond to society’s desire to make the world a better place, to try to make things safer, more convenient, more accessible, less expensive more abundant.
Risk management can help organizations make more informed decisions about technology so companies and people can take advantage of these new opportunities.
Paul D. Winston is chief operating officer of Insurance Thought Leadership Inc., serving decision-makers and innovators transforming the insurance and risk management marketplace with thought leadership, an innovation software platform and advisory services. Prior to joining ITL, he served over 25 years in digital marketing, editorial and management roles with Business Insurance. He can be reached at email@example.com.
From the thousands of insurtechs looking to transform insurance, here is a sampling of startups focused on commercial insurance applications. All of the companies have been recognized by Insurance Thought Leadership Inc..as an “Innovator to Watch.”