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PHILADELPHIA — Insurers have been slow to embrace artificial intelligence and analytics, and those that do not will experience negative impacts on their businesses, experts say.
“I was surprised and frightened by how poorly insurers use analytics,” Jonathan Kalman, founding partner of Eos Venture Partners in New York, a global investment fund that invests capital on behalf of insurers, said Tuesday at the Philly I-Day conference in Philadelphia. “They’re handcuffed by analytics. They’re paralyzed by analytics. Insurance companies are just waking up to … that there’s something called AI and they can use it. The insurers who fail to use analytics will see their business shrink.”
More than $12 billion has been invested in insurtech companies — not including the amount of money the insurers spent within their own organizations on such efforts — over the past five years, but the insurance industry “frankly, hasn’t seen a great return on it and it’s largely because we haven’t really centered on what we’re doing, why we’re doing it, the mechanisms by which we need to look at and address these investments, and the impact of the return that we are looking to get out of it,” said Mark Purowitz, insurance mergers and acquisition and insurtech leader for Deloitte Consulting LLP in New York.
“We at Eos believe that 99% of that $12 billion is going to be flushed down the toilet,” Mr. Kalman said. “Of that $12 billion, most of it is going to get acquired and rolled into incumbent business.”
Entities that invested that $12 billion did so because they thought the insurance industry was on the cusp of an evolution that would ease the insurance buying process, he said.
“Getting insurance is like a root canal,” Mr. Kalman said. “Your industry is difficult. You’re not trying to make it difficult. It’s just difficult.”
“The insurance industry is very complicated, very nuanced and very regulated, and you can’t just rush in,” he continued. “You will lose. It’s because you have regulations. It’s because you have legislation. It’s because you have consumer protection. It will be evolution. It won’t be revolution.”
The insurance industry is in a state of “moderate” evolution, with “a good portion” of the investments made during the first wave going to ideas and “overweighted to personal lines,” Mr. Purowitz said. Toward the last year or two of the first wave, more money was being invested in companies such as insurtech firm CoverWallet Inc. that “could actually produce something,” but even then, most of the investment focus was on innovation divisions and laboratories — some of which were often staffed by people with no digital training, he said.
“They were all working on things that were not impacting the core of what an insurance company does day in and day out,” he said. “They were looking for new ideas, largely centered around technology. They had four or five pillars around whether it was AI or driverless vehicles or telematics or blockchain or other things, but the majority of them were not centered around what fundamental business problems are we trying to solve for or new opportunities do we see in the marketplace for us to build a business around. It was more around how do we play with technology.”
“As we now move into the second wave, there’s less money being thrown at ideas and more money being thrown at things that are demonstrable … they’re getting larger amounts of money because they’ve started to prove it and it’s much more consumable by the industry,” Mr. Purowitz added. “The other thing that has happened is we’ve shifted from personal lines to a little more commercial lines orientation.”
“The insurance companies have been really slow to act and figure out how this is all done,” he continued. “A good portion of what folks like (CoverWallet bring) need to plug into existing structures, and those structures are not open.”
CoverWallet’s approach of partnering with the insurance industry “is the right approach,” Mr. Kalman said. “You can’t swim against this industry.”
“The technology here is not completely new,” said Inaki Berenguer, CEO and co-founder of CoverWallet in New York. “Compare that with self-driving cars that have to make decisions in real time as they are moving at 70 miles per hour. Our artificial intelligence is nothing compared to what’s going on in other sectors like self-driving cars, but we are using machine learning and artificial intelligence, even if it’s very basic, in a way that nobody in insurance” has done.
The company has been “looking at insurance from a framework that nobody has looked at insurance before, looking at insurance like a digital product that you subscribe to and that for as long as you keep paying, you’re going to be insured, no different from Netflix or Spotify or Dropbox,” he said.
Bermuda-based insurer and reinsurer Axa XL is using artificial intelligence to evaluate property risks and reduce time spent in risk assessment, improve underwriting and provide quick quotes, The Royal Gazette reported. AXA XL Risk Consulting has partnered with Italian software company Expert System S.p.A. to automate its risk review procedure.