New technologies are rapidly changing the world of business. Some examples of these new technologies include artificial intelligence, analytics, and wearables. Much like these new business technologies is the recent phenomenon in the insurance world: the InsurTech (Insurance Technology) startup movement.
Global management consulting firm McKinsey & Company defines InsurTech as “technology led companies that enter the insurance sector, take advantage of new technologies to provide coverage to a more digitally savvy customer base.”[i] Actuarial consulting firm Milliman describes InsurTech startups as “largely defined by their use of advanced technology in the drive to redefine the insurance/risk management process…InsurTech companies tend to rely on smartphone apps, AI, bots, and cloud computing…InsurTech companies are often hyper-focused on improving the customer experience.”[ii] In other words, InsurTech involves start-up firms harnessing new technologies to add value and create better outcomes (particularly risk management outcomes) for all parties in the insurance transaction lifecycle.
The use and benefit of InsurTech services varies for all parties involved in the insurance transaction process.
- Carriers: utilizing new technologies offered by Insurtech firms to improve results such as analytics, weather data, spatial data, drones, and sensor technology.
- Underwriters: using these resources to improve risk analysis, risk selection, and risk pricing.
- Claims Adjusters: utilizing these technologies to better analyze and adjust claims more efficiently.
- Insureds: taking advantage of mobile applications developed by Insurtech firms to pay bills or report claims and using smart home technologies that manage home activities or using wearables to track their health.
- Agents: using Insurtech developed analytic tools to track sales outcomes and leads.
So where is InsurTech going? A recent article in Vertafore, the largest provider of technology in the insurance industry, noted that “global investments in InsurTech are increasing dramatically. Up 1,900 percent since 2011 ($131 million in 2011 to $2.6 billion in 2016.)”[iii] Insurance consulting firm SMA recently reported there are now “1,200 InsurTechs worldwide today.”[iv] A 2016 survey report from consulting firm Price Waterhouse Coopers (PWC) noted that “68% of insurance industry players are dealing with FinTech (Financial Technology)[v] …only 28% explore partnerships with FinTech” The study then notes “Insurers and FinTechs do not yet have well-established business relations, which could be the cause of tension between the two sectors. ”[vi] In short, funding and carrier collaboration with InsurTech firms is rising, but not without some challenges. As time goes on, the degree of insurer-InsurTech partnering will most likely continue to grow. It is a force to be reckon with and will continue to greatly influence the direction of the insurance industry.