At the recent International Insurance Society annual meeting, panelists laid out some intriguing thoughts on insurtech, saying that the first wave is ending and describing the outlines of the second wave that has already begun to form.
The key takeaways: 1) The industry is focusing too much on what panelists called "the shiny objects," like artificial intelligence, and not enough on the issues that really matter to customers and to corporate bottom lines; and 2) incumbents will bear much of the responsibility for whatever success the second wave has, depending on how well they retool their mindsets and their processes to absorb the steady stream of innovations that smaller players will provide.
The best image: the mullet. That's how Jamie Yoder, president of Snapsheet, characterized innovation in insurance to date. "There has been so much attention paid to the front end [basically, sales]," he said, "but there's a huge opportunity to clean up the back."
In addition to Yoder, whose young company digitizes and automates the claims process in personal lines, the panel consisted of: 1) Chris Cheatham, who founded a startup, RiskGenius, that uses AI to facilitate review of policies and that was recently acquired by a bigger startup, Bold Penguin; and 2) Jeff Berezny, SVP and general manager of enterprise products at Trov, which provides a digital technology platform for incumbents. The panel was moderated by James Maudslay, global head of insurance at Equinix, which operates a huge network of data centers. (You can watch the entire session here.)
Yoder argued forcefully that much of the focus for innovation is on the wrong issues. He said that the sexy part of what Snapsheet does is the computer vision that can analyze photos of damage in a car crash and use artificial intelligence to provide an estimate of the cost of repairs. But he said computer vision saves only maybe 15 minutes on estimating -- in a claims process that can languish for days. He said he can get from a first notice of loss to a settlement in 30 minutes, but the computer vision only works in 1% of the cases. Why not, Yoder asked, focus on the big delays that happen as the insurers for those involved in a crash gather and exchange data, sort out responsibility and get money to clients so they can get their cars repaired?
He said the secret to innovation isn't to have AI do the estimate. "Al will do," Yoder said. [Lest his joke doesn't come across in print: He's saying that Al, as in someone perhaps named Albert, could do the work that everyone seems to want to assign to artificial intelligence and still allow for considerable innovation.]
"The real issue is all the handoffs," Yoder said. The solution is to "have the claim be the captain of the process. It's determining, what can I do myself? It's assigning tasks to vendors, updating the customer, getting an issue to a person when it needs a person." At the moment, he said, claims processes are managed "based on massive diaries and to-do lists, which don't really foster efficient throughput of work. And this is in a piece of the business that is 70% of the cost."
He said it's also crucial to focus on all parts of the process, because so many can yield improvement. "We'd do all this work with carriers to speed their claims, then find they were still cutting paper checks," Yoder said. "It's like you decide to drink a diet Coke but then order a Big Mac to go with it."
Berezny agreed that the beginning of the claims process "is just phone tag. Call me back, call me back, call me back...." So, having AI that manages the process, to reduce the administrative load on people, and that speeds the handoffs would matter much more than AI that prepares an estimate.
He said the second wave of insurtech that is taking shape now will be more about "selling picks and shovels" and not about the "gold rush" that is being capped off now with the huge valuations that Lemonade and Root achieved following their initial public offerings.
But he said the incumbents have a lot of work to do to prepare. While being cloud-based and digital are table stakes for being able to innovate these days, Berezny said, "Insurance just isn't there yet."
Yoder said incumbents need to develop modular processes, based on application programming interfaces (APIs), so companies can have "plug-and-play innovation." Are information systems designed so "you can just plug your innovation in, or are you stuck with a new wave of IT integration projects every time" you see an insurtech whose software could improve your business? "Innovation isn't about a point in time. This is a journey."
He said the need to be able integrate innovation quickly is all the more important because so much is becoming available. Yoder, who until two years ago ran the insurance practice at PwC, said clients used to need to invent a host of capabilities to be able to pursue a digital strategy. "Now," he said, "you can just pull together a list of insurtechs with those capabilities, and there you go. You should get there a lot faster and for a lot less money."
Berezny said he sees the new wave of insurtechs leading to "not just direct but embedded" insurance. As a result, he said Trov is working with mortgage groups to embed home insurance in their sales processes, with new digital banks to offer insurance as part of their portfolios and with affinity groups to include insurance in their dealings with members.
"Insurance needs to meet people where they are," Berezny said. "You can't just assume they'll come to your great, shiny website."
Yoder agreed that embedded insurance has great promise. "People sometimes look for innovations that are way beyond what anyone ever thought of," he said, "but sometimes the opportunities for innovation are staring you in the face."
Cheatham said that, with "the first wave of insurtech coming to an end," he hears a lot about how AI will supposedly eliminate human jobs. But he said the second wave will be about "augmenting humans, not replacing them." In commercial insurance, where RiskGenius and Bold Penguin focus, "There are too many nuances for us to think that we're going to get rid of humans in any part of the process."
He said that innovation in commercial lines moves more slowly than in personal lines, where Trov and Snapsheet live. But he said, "We've shrunk processes from weeks down to days, and we can go so much further. I see a big acceleration going forward.
"We'll catch up to you other guys soon enough."
P.S. Here are the six articles I'd like to highlight from the past week:
2021: The Great Reset in Insurance
A shift toward greater corporate and social responsibility and empathy in general is underway, and 2021 will bring a great global reset.
Innovating Our Way Out of a Crisis
Any requirement, process, delay or regulatory cost that does not serve insurer solvency or consumer protection should be on the table for retirement.
Ecosystem-Based Business Models
More insurers now see ecosystems as an effective, flexible and capital-efficient way to grow the business and promote customer-centricity.
3 Must-Haves for a Self-Service Portal
A hybrid approach to customer service appears to be the most appropriate strategy, smartly balancing self-service and human support.
Time to Move Climate Risk Center-Stage
Insurers face a steep learning curve in embedding climate risk into their enterprise risk management programs, but the climb will be worth it.
Free Insurance Data You’ll Need
I’ve been building and reviewing business plans for years and come across great free resources to help me along the way. Here they are.