Tag Archives: cyence

How AI Is Redefining Insurance Industry

The insurance industry has operated with great consistency and clear processes for many years. People may not always like or agree with how things work, but nearly everyone from the consumer to the provider essentially goes with it — no uprisings to drive change, no big shakeups. That is until recently. Seemingly all of a sudden, artificial intelligence (AI) is infiltrating the insurance industry, which may be a bit scary to those devoted to long-established practices.

In reality, we are witnessing relatively quick developments and sparks of innovation, considering the overall life cycle of the insurance industry. And what AI offers — now and promises to in the future — is anything but scary. It’s actually quite exciting as the industry enters a truly transformative period that will result in greater efficiency, significant cost savings, and far better service and care.

What Constitutes AI

AI has become one of the biggest buzzwords in the tech landscape, so I want to define what it really means, particularly as it pertains to the insurance industry. AI is a computerized system that exhibits behavior that is commonly thought of as requiring human intelligence. Taking this a step further, it essentially translates to machines acquiring a certain level of “human-ness” so that interactions with software become more like interactions with real people. It also mandates that a system has the ability to learn and improve on its own.

Advances in AI come because of a number of factors, but, undoubtedly, consumer-based technologies have led the charge. Voice, machine learning, computer vision and deep learning have been refined in consumer products, services and platforms, but they are now being combined to create really powerful automated solutions for some of the biggest issues organizations face.

See also: 4 Ways Machine Learning Can Help  

Specific to the insurance industry, novel AI-based applications can shift the workforce and advance what companies are able to assess and offer as well as how quickly they can do it. And this is just over the short term. McKinsey predicts that AI “has the potential to live up to its promise of mimicking the perception, reasoning, learning and problem solving of the human mind. In this evolution, insurance will shift from its current state of ‘detect and repair’ to ‘predict and prevent,’ transforming every aspect of the industry in the process.”

The Rise of Insurtech

This may sound a bit abstract and futuristic, but AI advances have already led to a whole new market segment: insurtech. A slew of new companies have popped up, showcasing strong growth by bringing AI and machine learning to market with the industry’s very specific and nuanced needs in mind. For example, Cyence, which was acquired by Guidewire Software, developed a platform to ascertain the financial impact of cyber risk and management of risk portfolios; and Cape Analytics provides a service to property insurers that combines AI and geospatial imagery to analyze property and streamline the underwriting process — and these are just two examples. Other AI-based companies have emerged to reduce costs in claims operations, identify various insurance protection options, and transform mobile and social media marketing for insurance companies.

The insurtech segment is not defined by new players alone. Several incumbents have also dipped their toes into the AI waters to develop innovative applications. State Farm developed Distracted Driver Detection that uses dashboard camera images. Allstate has ABIE, a virtual assistant to help agents with information regarding Allstate’s commercial products, and Progressive now applies machine learning on top of data collected from client drivers through the “Snapshot” mobile app.

What Does It All Mean?

First and foremost, the rise of insurtech indicates that the insurance industry is changing profoundly as it modernizes. The ability to analyze countless data points in mere seconds opens ways to assess and predict that humans simply cannot hope to accomplish. This does not mean that humans are no longer needed in the industry. Quite the contrary. People still possess higher-level thinking skills that machines are not equipped to gain. The capacity to factor in intangibles, to make judgment calls, to see and interpret what lies beyond the screen — these are human skills that will always be in demand.

See also: Key Challenges on AI, Machine Learning 

In this light, AI and machine learning applications should be leveraged to streamline and better inform the decisions that humans must make. When this happens, workers are freed to focus on the facets of their jobs that matter the most. In addition to benefits to workers, organizations experience multiples of improvement in cost savings by increased efficiency, accuracy and better predictions generally. Simultaneously, customer service and patient care improve by providing answers and resources tailored to their specific case in a fraction of the time.

Perhaps the most exciting impact of insurtech, however, will be the new business models that arise. The notion of how we administer care will change, as will the way we construct policies for individuals and companies. Essentially, what has never been possible before is suddenly on the table. The options may appear overwhelming or even threatening to the existing way of life, but AI and insurtech have arrived. The advancements that will occur over the next decade will be extraordinary for all constituents. Pay attention and embrace the innovation long needed in the insurance industry.

Cyber: Black Hole or Huge Opportunity?

You own a house. It burns down. Your insurer only pays out 15% of the loss.

That’s a serious case of under-insurance. You’d wonder why you bothered with insurance in the first place. In reality, massive under-insurance is very rare for conventional property fire losses. But what about cyber insurance? In 2017, the total global economic loss from cyber attacks was $1.5 trillion, according to Cambridge University Centre for Risk Studies. But only 15% of that was insured.

I chaired a panel on cyber at the Insurtech Rising conference in September. Sarah Stephens from JLT and Eelco Ouwerkerk from Aon represented the brokers. Andrew Martin from Dyanrisk and Sidd Gavirneni from Zeguro, the two cyber startups. I asked them why we are seeing such a shortfall. Are companies not interested in buying or is the insurance market failing to deliver the necessary protection for cyber today? And is this an opportunity for insurtech start-ups to step in?

High demand, but not the highest priority

We’ll hit $4 billion in cyber insurance premium by the end of this year. Allianz has predicted $20 billion by 2025. And most industry commentators believe 30% to 40% annual growth will continue for the next few years.

A line of business growing at more than 30% per year, with combined ratios around 60%, at a time when insurers are struggling to find new sources of income is not to be sniffed at.

But the risks are getting bigger. My panelists had no problem in rattling off new threats to be concerned with as we look ahead to 2019. Crypto currency hacks, increasing use of cloud, ransomware, GDPR, greater connectivity through sensors, driverless cars, even blockchain itself could be vulnerable. Each technical innovation represents a new threat vector. Cyber insurance is growing, but so is the gap between the economic and insured loss.

The demand is there, but there are a lot of competing priorities. Today’s premiums represent less than 0.1% of the $4.8 trillion global property/casualty market. Let’s try to put that in context. If the ratio of premium between cyber and all other insurance was the same as the ratio of time spent thinking about cyber and other types of risk, how long would a risk manager allocate to cyber risk? Even someone thinking about insurance all day, every day for a full working year would spend less than seven minutes a month on cyber.

It’s not because we are unaware of the risks. Cyber is one of the few classes of insurance that can affect everyone. The NotPetya virus attack, launched in June 2017, caused $2.7 billion of insured loss by May 2018, according to PCS, and losses continues to rise. That makes it the sixth largest catastrophe loss in 2017, a year with major hurricanes and wildfires. Yet the NotPetya event is rarely mentioned as an insurance catastrophe and appears to have had no impact on availability of cover or terms. Rates are even reported to be declining significantly this year.

See also: How Insurtech Boosts Cyber Risk  

Large corporates are motivated buyers. They have an appetite for far greater coverage than limits that cap out at $500 million. Less than 40% of SMEs in the U.S. and U.K. had cyber insurance at the end of 2017, but that is far greater penetration than five years ago. The insurance market has an excess of capital to deploy. As the tools evolve, insurance limits will increase. Greater limits mean more premium, which in turn create more revenue to justify higher fees for licensing new cyber tools. Everyone wins.

Maybe.

Growing cyber insurance coverage is core to the strategy of many of the largest insurers.

Cyber risk has been available since at least 2004. Some of the major insurers have had an appetite for providing cyber cover for a decade or more. AIG is the largest writer, with more than 20% of the market. Chubb, Axis, XL Catlin and Lloyd’s insurer Beazley entered the market early and continue to increase their exposure to cyber insurance. Munich Re has declared that it wants to write 10% of the cyber insurance market by 2020 (when it estimates premium will be $8 billion to $10 billion). All of these companies are partnering with established experts in cyber risk, and start-ups, buying third party analytics and data. Some, such as Munich Re, also offer underwriting capacity to MGAs specializing in cyber.

The major brokers are building up their own skills, too. Aon acquired Stroz Friedberg in 2016. Both Guy Carpenter and JLT announced relationships earlier this year with cyber modeling company and Symantec spin off CyberCube. Not every major insurer is a cyber enthusiast. Swiss Re CEO Christian Mumenthaler declared that the company would stay underweight in its cyber coverage. But most insurers are realizing they need to be active in this market. According to Fitch, 75 insurers wrote more than $1 million each of annual cyber premiums last year.

But are the analytics keeping up?

Despite the existence of cyber analytic tools, part of the problem is that demand for insurance is constrained by the extent to which even the most credible tools can measure and manage the risk. Insurers are rightly cautious, and some skeptical, as to the extent to which data and analytics can be used to price cyber insurance. The inherent uncertainties of any model are compounded by a risk that is rapidly evolving, driven by motivated “threat actors” continually probing for weaknesses.

The biggest barrier to growth is the ability to confidently diversify cyber insurance exposures. Most insurers, and all reinsurers, can offer conventional insurance at scale because they expect losses to come from only a small part of their portfolio. Notwithstanding the occasional wildfire, fire risks tend to be spread out in time and geography, and losses are largely predicable year to year. Natural catastrophes such as hurricanes or floods can create unpredictable and large local concentrations of loss but are limited to well-known regions. Major losses can be offset with reinsurance.

Cyber crosses all boundaries. In today’s highly connected world, corporate and country boundaries offer few barriers to a determined and malicious assailant. The largest cyber writers understand the risk for potential contagion across their books. They are among the biggest supporters of the new tools and analytics that help understand and manage their cyber risk accumulation.

What about insurtech?

Insurer, investor or startup – everyone today is looking for the products that have the potential to achieve breakout growth. Established insurers want new solutions to new problems; investment funds are under pressure to deploy their capital. A handful of new companies are emerging, either to offer insurers cyber analytics or to sell cyber insurance themselves. Some want to do both. But is this sufficient?

The SME sector is becoming fertile ground for MGAs and brokers starting up or refocusing their offerings. But with such a huge, untapped market (85% of loss not insured), why aren’t cyber startups dominating the insurtech scene by now? The number of insurtech companies offering credible analytics for cyber seems disproportionately small relative to the opportunity and growth potential. Do we really need another startup offering insurance for flight cancellation, bicycle insurance or mobile phone damage?

While the opportunity for insurtech startups is clear, this is a tough area to succeed in. Building an industrial-strength cyber model is hard. Convincing an insurer to make multimillion-dollar bets on the basis of what the model says is even more difficult. Not everyone is going to be a winner. Some of the companies emerging in this space are already struggling to make sustainable commercial progress. Cyber risk modeler Cyence roared out from stealth mode fueled by $40 million of VC funding in September 2016 and was acquired by Guidewire a year later for $265 million. Today, the company appears to be struggling to deliver on its early promises, with rumors of clients returning the product and changes in key personnel.

The silent threat

The market for cyber is not just growing vertically. There is the potential for major horizontal growth, too. Cyber risks affect the mainstream insurance markets, and this gives another source of threat, but also opportunity.

Most of the focus on cyber insurance has been on the affirmative cover – situations where cyber is explicitly written, often as a result of being excluded from conventional contracts. Losses can also come from ” silent cyber,” the damage to physical assets triggered by an attack that would be covered under a conventional policy where cyber exclusions are not explicit. Silent cyber losses could be massive. In 2015, the Cambridge Risk Centre worked with Lloyd’s to model a power shutdown of the U.S. Northeast caused by an attack on power generators. The center estimated a minimum of $243 billion economic loss and $24 billion in insured loss.

In the current market conditions, cyber can be difficult to exclude from more traditional coverage such as property fire policies, or may just be overlooked. So far, there have been only a handful of small reported losses attributed to silent cyber. But now regulators are starting to ask companies to account for how they manage their silent cyber exposures. It’s on the future list of product features for some of the existing models. Helping companies address regulatory demands is an area worth exploring for startups in any industry.

See also: Breaking Down Silos on Cyber Risk  

Ultimately, we don’t yet care enough

We all know cyber risk exists. Intuitively, we understand an attack on our technology could be bad for us. Yet, despite the level of reported losses, few of us have personally, or professionally, experienced a disabling attack. The well-publicized attacks on large, familiar corporations, including, most recently, British Airways, have mostly affected only single companies. Data breach has been by far the most common type of loss. No one company has yet been completely locked out of its computer systems. WannaCry and NotPetya were unusual in targeting multiple organizations, with far more aggressive attacks that disabled systems, but on a very localized basis.

So, most of us underestimate both the risk (how likely), and the severity (how bad) of a cyber attack in our own lives. We are not as diligent as we should be in managing our passwords or implementing basic cyber hygiene. We, too, spend less than seven minutes a month thinking about our cyber risk.

This lack of deep fear about the cyber threat (some may call it complacency) goes further than increasing our own vulnerabilities. It also the reason we have more startups offering new ways to underwrite bicycles than we do companies with credible analytics for cyber.

Rationally, we know the risk exists and could be debilitating. Emotionally, our lack of personal experience means that cyber remains “interesting” but not “compelling” either as an investment or startup choice.

Getting involved

So, let’s not beat up the incumbents again. Insurance has a slow pulse rate. Change is geared around an annual cycle of renewals. It evolves, but slowly. Insurers want to write more cyber risk, but not blindly. The growth of the market relies on the tools to measure and manage the risk. The emergence of a new breed of technology companies, such as CyberCube, that combine deep domain knowledge in cyber analytics with an understanding of insurance and catastrophe modeling, is setting the standard for new entrants.

Managing cyber risk will become an increasingly important part of our lives. It’s not easy, and there are few shortcuts, but there are still plenty of opportunities to get involved helping to manage, measure and insure the risk. When (not if) a true cyber mega-catastrophe does happen, attitudes will change rapidly. Those already in the market, whether as investors, startups or forward thinking insurers, will be best-positioned to meet the urgent need for increased risk mitigation and insurance.

5 Key Questions for Midsize Insurers

This year, mid-sized insurers continue to face significant challenges, but these challenges can be treated as opportunities for organizations to distinguish themselves from competitors. As the digital economy continues to spur change, insurers would be wise to get in front of the curve by taking steps to improve underwriting and increase profitability. Here are five questions mid-sized insurers should ask themselves to help guide their business transformation.

1. How well do we leverage our data?

The days of the actuary as the primary data interpreter are waning as data analysts with access to an ever-increasing set of tools are leaving actuaries in their wake. Insurance companies are starting to take notice, and those that are leveraging their data to make informed decisions are enjoying faster growth and increased profitability. A data innovation strategy must come from the top of an organization and go down. However, the scope of the endeavor and the multitude of choices can be daunting. For example, a predictive model can provide great insight, but it may be more prudent to design a model that enhances your organization’s decision-making capabilities rather than one that replaces current methods. Management information, underwriting, pricing, claims management, claims reserving and actuarial reserving should all be informed by your organization’s data, which makes developing and implementing a smart data strategy imperative.

See also: A Closer Look at the Future of Insurance  

2. Is regulation an opportunity or an obstacle?

Regulation is useful when it promotes strong digital protection standards, the advantages of which are best illustrated when the inevitable cyber breach hits the press. Your organization may not be directly subject to General Data Protection Regulation or New York State Department of Financial Services (NYDFS) cybersecurity regulations, but the standards are illuminating, nevertheless. At a minimum, your firm should be reviewing compliance standards and determining which ones it should be implementing as a function of industry best practices. Since the National Association of Insurance Commissioners currently produces a less-comprehensive standard, a company may someday find itself on the defense, arguing it did only what was required. NYDFS standards could easily become the de facto standard, especially over the next few years as third-party vendors doing business with New York-based financial institutions will need to ensure compliance with NYDFS requirements. The reality is that data is an asset, and insurance companies rely heavily on data to run their businesses. Insurers will be collecting and using even more data in the future. They must take steps to protect this valuable, growing business asset and be prepared to adopt the highest standards of protection for their insureds.

3. Will our organization be the next to be disrupted?

For the past few years, venture capital dollars have been flowing into insurance disruptors such as Cyence, Metromile and Lemonade. Certainly, we won’t see complete disruption overnight, but small changes will likely occur more frequently than expected, and, over time, the effects will have a significant impact on current business models. Your company could be disrupted by a current competitor using advanced machine learning algorithms in the underwriting process. Or perhaps an insurtech startup will begin to capture all your new insurance prospects through its new mobile app and lower price point, halting your growth. Similarly, consider non-insurance-specific disruptions, such as developments in the “Internet of Things.” What if a new device is rolled out by a competitor that protects its insureds from meaningful injuries by using sensors to alert workers and their employers of dangerous conditions — providing a distinct advantage to their workers’ compensation insurance rates. Will your firm be the disruptor or the disrupted? Regardless of the answer, what is your firm doing to prepare for the impact?

4. Are we transferring risks to the capital markets?

The reinsurance market has been transformed over the past decade by insurance-linked securities (ILS), alternative reinsurance instruments like catastrophe bonds and collateralized reinsurance contracts, whose value is affected by an insured loss event. ILS investors are typically willing to accept a lower rate of return than traditional reinsurance companies because of the diversifying effect on the insurance-linked investor’s broader portfolio. That incentive has drawn more investor capital to the reinsurance market, putting pressure on reinsurance rates and even causing reinsurers to start their own investment funds. And while long-term relationships between insurers and reinsurers have tremendous value, your organization should be looking at all efficient opportunities to lay off excess risk and protect your company from earnings volatility.

See also: Can Insurance Be Made Affordable?  

5. Why do we need a digital innovation strategy?

For many, innovation is inherently uncomfortable and volatile. Technology is changing rapidly, and the insurance industry is already starting to evolve. Managing an insurance transformation process triggered by a digital revolution will not be easy, but it must begin with identifying your current value proposition: Why do your clients value your insurance? Identify what you do well as an organization and what you can improve upon. By incorporating your starting point into a change plan that recognizes current strengths and explores future possibilities, your firm will be better prepared to navigate the coming industry transformation and will be better positioned to thrive on the other side of change.

Asia Will Be Focus of Insurtech in 2017

Asia will be the key pillar in the coming revolution of insurance and in all likelihood will become the hottest market for insurance technology (insurtech) globally. It’s no longer just a pipe dream, as this time all the stars are aligning. Take the sheer population size and rapidly emerging tech-savvy middle class, together with low effectiveness of traditional insurance distribution. Combine that with a destabilizing wave of political populism, making its rounds across much of the developed world, and you’ve got most of the ingredients for a region that will take on a leading global role for insurtech.

So what, if anything, is missing to really ignite insurtech in Asia? It turns out that while the region is ripe for insurtech, the actual quantity and quality of startups in Asia is nowhere near that of other regions… at least not yet.

Share of investments in insurance startups can be used as a good proxy to the overall level of insurtech activity around the world. According to the figures, the U.S. takes 63%, with Germany (6%), U.K. (5%) and France (3%). China is at 4% – which doesn’t account for Zhong An’s massive investment in 2015 — and India at 5% (Source: CB Insights).

See also: The Future of Insurance Is Insurtech  

So the logical question is, why aren’t there more startups in Asia, considering the substantial opportunity and funding that exists in the region? Is it due to a shortage of experienced entrepreneurs, difficulty of starting a business, lack of access to investment or something else? The answer is that it’s likely a combination of a few factors, including a weaker early-stage entrepreneurial ecosystem, which doesn’t yet effectively support startups, and a cultural aspect of lesser tolerance for failure. Both of these are changing fast, though, and entrepreneurs across Asia are starting to identify and test innovative insurtech solutions.

The following are just a few recent notable insurtech startup examples across Asia that have already reached beyond Series A funding: Zhong An (an $8 billion Chinese insurtech startup), Connexions Asia (Singaporean flexible employee benefits platform with a U.S.$100 million valuation), and two large insurance aggregators out of India– Policybazaar and Cover Fox.

So why am I convinced that Asia insurtech startups will not end up dominating their regional home turf ?

Probability and “Survival of the Fittest”

The lack of critical mass of startups in the region means that they will not enjoy the same quality filters and network effects of the larger entrepreneurial ecosystems of the U.S., Europe and to a somewhat lesser degree China.

“Surviving” U.S. and European startups have to fight their way across a lot more competition to reach scale in their home markets. Hence, where a weaker startup in Asia could get repeated life support simply because there aren’t that many others to invest in, natural selection weeds out the weaker models in EU/U.S. much quicker in favor of more robust ones. Stronger startups then get to attract the best talent from the entrepreneurial ecosystem, including talented entrepreneurs whose models didn’t work as well, further reinforcing successful EU/U.S. startups.

Home Market Advantage

Success in a large home market like the U.K., Germany or a few U.S. states gives a substantial boost to any startup. It provides both credibility and cash flow to allow a much more aggressive expansion into other regions. This also gives a startup flexibility to develop the necessary adjustments to the business model to adapt it for Asia.

The U.S. and EU have a deep domain level of insurance expertise, which gives EU/U.S. startups from those regions a further edge to tap advisory expertise locally, because most of the largest global insurers are based in these two regions.

Lastly, considering that most startups adopt a collaborative approach with insurance companies, having a relationship that originates close to the top decision maker at headquarters gives an added advantage to EU/U.S. startups when they are looking at expanding to new regions. I’ve personally experienced examples of relationships developed in Europe that later carried over in creating a pre-warmed partnership with the insurer’s operations in Asia.

Regulatory Complexity

Asia is made up of a large number of countries, where each has its own insurance regulator, who possess views on how things should be run. This means an additional potential growth hurdle for Asian startups.

For example, a startup out of Singapore will need to figure out how to navigate the neighboring Asian country regulatory regimes pretty early in its growth cycle. Thailand, Malaysia, Indonesia and Vietnam markets all have diverse regulatory requirements. This lands the Singaporean startup at a disadvantage vs. a more mature startup out of EU/U.S. – which not only has experience dealing with regulators in its home market but also possesses a proven track record and a larger resource pool that it can use to overcome any regulatory issues.

Meet Future Leaders of Asia InsurTech

Here are  35 insurance startups from across the U.S., Europe and China that have a real shot at collaboratively shaping the future of Asia’s insurance . Granted that not all of these startups will successfully adapt their models for Asia, a few would and will go on to successfully dominate Asia’s insurtech landscape in the foreseeable future.

Credit: George Kesselman

Credit: George Kesselman

The future of insurance in Asia is coming fast, and it’s looking pretty exciting!

See also: Insurtech Has Found Right Question to Ask  

Below are links/brief description of each of these 35 ventures.

U.K.

  • Guevara – People-to-people car insurance
  • Bought by Many – Insurance made social
  • Cuvva – Hourly car insurance on-demand
  • SPIXII– AI insurance agent
  • Gaggel – A better alternative to mobile phone insurance.
  • ClientDesk – Digitizing the insurance industry
  • Insly – Insurance broker software

Germany

  • SimpleSurance – World’s leading e-commerce provider for product insurances
  • Friendsurance – The future of insurance (P2P)
  • Getsafe – One-stop digital solution for all your insurance matters
  • Finanz-chef24 – Germany’s largest digital insurance for entrepreneurs and self-employed
  • Money-Meets – Save money and improve finances
  • Clark – Insurance as easy as never before
  • MassUP – White-labeled platform for online insurance sales
  • FinanceFox – Your insurance hero

USA

  • Metromile – Pay-per-mile insurance (usage-based auto insurance)
  • Oscar – Smart, simple health insurance.
  • Zenefits – Online HR Software | Payroll | Benefits – All-In-One (EB distribution)
  • Policy Genius – Insurance advice, quoting and shopping made easy
  • Embroker – Business insurance in the digital age
  • Slice – On-demand insurance for the on-demand economy.
  • Trov – On-Demand insurance for your things
  • Cover Hound – Compare car insurance quotes from top carriers
  • Insureon – Small-business insurance
  • Bunker – The marketplace for contract-related insurance
  • Lemonade – Peer-to-peer renters and homeowners insurance
  • Cyence – Comprehensive platform for the economic modeling of cyber risk

China