Tag Archives: disintermediation

The Unicorn Hiding in Plain Sight

Attend any insurance-focused conference, and you will undoubtedly hear about the high volume of angel and venture capital currently chasing the next unicorn in insurance – the industry equivalent of Facebook or Amazon. In the search for value, investors are first asking questions about how long it will take for innovation to transform the industry’s business model or who will be the major disrupters. Is it the new approach to distribution that will render the current ecosystem extinct? Is it a different approach to underwriting courtesy of new advancements in data and analytics? These are legitimate questions – but what if we are looking in all the wrong places? What if the next Uber of insurance has already arrived?

An important component of the value chain in consumer-facing markets is access to the customer. Creating a user-friendly application drives user engagement, and therefore retention. The critical difference in the insurance industry, however, is the lack of engagement. Insurers are challenged with a product that does not lend itself to a frequent interaction with clients. There are typically only two points of contact: sale and claim payment. Though both present opportunities to build customer relationships, this number is orders of magnitude lower than for consumer technology applications. This means insurers need a better solution to work around the value chain to gain control of the customer, one that involves driving down costs. Herein lies an unexpected solution – alternative capital.

Alternative capital refers to pools of capital available for the transfer of risk from an insurer to the capital markets, typically in the form of insurance-linked securities (ILS) or special purpose vehicles (SPVs). The impact of alternative (or third party) capital is well understood in the reinsurance world today as global risks have been packaged, turned into portfolios and offered to the very largest providers of capital in the world as an alternative, risk-bearing asset class. The size of the market has grown considerably in recent years, with alternative capacity reaching $86 billion, or 14% of global reinsurance capital, as of the first quarter end of 2017, according to Aon.

Alternative capital represents 14% of global reinsurance capital

The question, though, that investors should be asking is: Who has access to the cheapest capital? The answer to this question, the authors believe, will yield important insights as capital efficiency enables players in this space to get closer to the clients and, more specifically, the source of risk. After providing appropriate scale for disruption in the industry, along with an important framework to understand industry cost of capital, we consider evidence from the banking sector and anecdotal data from current trends in the market to argue that the Uber of insurance is already here.

See also: Preparing for Future Disruption…  

Disruption at Scale

In an era of rampant overcapacity, it is sometimes easy to forget the historical significance of access to risk-based capital. The explosion of new technology applications to challenge the gatekeepers in the industry, funded by a dramatic rise in venture capital for Insurtech startups, has taken a lot of interest among industry participants. Insurance and reinsurance applicants are still, though, fundamentally sending submissions and applications to be accepted as insureds and cedants. There is an offer of risk transfer for premium. Unless platforms that control the customer also start retaining the risk with an equal to or lower cost of capital, the incumbents are still likely to control the system. Until this happens, those who build the best capital platform can offer the best products to attract customers, with the lowest-cost capital translating to lower prices for consumers – a reality supported by the scale of alternative capital disruption.

Alternative capital currently on risk in 2016 dwarfs VC funding in Insurtech

While the scale of insurtech investment itself is enough to make serious people sit up and take notice, it is the speed, velocity, sources and efficiency of capital that will drive the future direction of the industry. To assess the long-term impact to the industry of these dueling solutions to disruption, an understanding of the drivers of industry cost of capital is required.

Insurance Company Cost of Capital

While ILS as a practice is nearly 20 years old, we are still in the first inning of how this once-niche part of the global reinsurance and risk transfer market will expand its influence. The current problem the industry is facing is that it does not do a good job of differentiating capital sources with specific levels of risk. Investors looking for a 5% or 7% or 11% return all fund risk whether at the 1-in-50 return period or 1-in-250 return period. This capital inefficiency not only lowers margins but also increases the cost of capital and perpetuates a system that hinders new product development at the expense of the end consumer. The use of third party capital gives underwriters the ability to cede remote, capital-intensive risk off their books and onto a lower-cost balance sheet. This matching of different types of risk with different pools of capital produces a leaner, more customer-focused, lower-priced risk transfer market, ultimately benefitting the end consumer from cheaper reinsurance products.

The industry also cares about returns. Meeting analyst expectations has become increasingly difficult as pricing and investment yields have declined. Because insurance companies operate in a market that is becoming more commoditized, insurers and reinsurers need to either find another way to increase returns or figure out a way to lower their cost of capital. Alternative capital providers have a fundamental advantage in this respect, as “…pension fund investors are able to accept lower returns for taking Florida hurricane risk than rated reinsurers, for whom the business has a high cost of capital.” Similarly, the opportunity cost of capital for a typical venture capital fund (17% before management fees and carried interest) outstrips the hurdle rate for pension fund investors who turn to catastrophe risk as a diversifying source of return.

Similarities to the Banking Sector

The importance of cost of capital in determining winners and losers in capital-intensive industries can be clearly seen in the banking sector. When banks accessed lower-cost capital through capital market participants, their balance sheets were essentially disintermediated as they no longer had to finance the bank’s capital charges. By going straight from the issuer to capital and removing the need to finance these expensive capital costs, the aggregate cost of the system (value chain) was reduced. This benefitted consumers and drove retention in the same way we normally associate technology disintermediating distribution in other industries to drive down costs.

Just as loan securitization transformed the banking industry, so, too, can risk securitization change the economics and value proposition of insurance for the end consumer. Capital disintermediation offers new operating models that connect the structurers of risk with the pricers of risk, until disrupters prove they can do this better. Because insurance underwriters and mortgage loan originators retain differing levels of risk ceded to the capital markets, gaining access to the most efficient forms of financing is an increasingly important battleground for players in the insurance space. When investors no longer tolerate capital inefficiency and increasing returns proves challenging, value chain disruption is a real threat because the lack of client proximity and customer engagement provides no competitive moat. A comparison between the recent growth in U.S. P&C industry direct written premiums and growth in U.S. P&C industry surpluses shows just why capital efficiency is so important.

Renewed focus on capital efficiency as industry surpluses overtake industry premiums

Industry surpluses have increased at a rate more than double that of industry premiums ($418 billion increase vs. $200 billion increase) since 2002. The surplus growth relative to premiums highlights the steep drop in capital leverage from 1.4 in 2002 to 0.8 in 2016. As insurers sit on larger stockpiles of capital, they are relying less on underwriting leverage to juice up returns to meet their cost of capital. Hence, pricing power and cost controls have taken on increased importance.

The Current Fall-out

The growth of alternative capital has fostered innovation, both directly and indirectly, among industry participants across the value chain. Under the weight of efficient capital, industry players can take a step beyond leveraging insurtech to create value within the system – they can collapse it. In fact, we are seeing this happen right now. ILS funds such as Nephila are bypassing the entire value chain by targeting primary risk directly. Nephila’s Velocity Risk Underwriters insurance platform enables the ILS manager to source risk directly from the ultimate buyer of insurance. From consumer to agent to the Nephila plumbing system, homeowners’ risk in Florida can be funded directly by a pension fund in another part of the world.

See also: Innovation: ‘Where Do We Start?’  

Innovation is a healthy response, and this evolution of the reinsurance business model, while producing losers, will produce a leaner, more customer-focused, lower-priced risk transfer market in the end, ultimately benefitting everyone. The opportunity set for alternative capital to benefit the industry is not just limited to retrocession and access to efficient capital. Leveraging third party capital to provide better products and services to clients allows insurance companies to not only expand their current product offerings but also extend the value proposition beyond price alone, with different capital sources offering different structural product designs, terms, durations and levels of collaterization.

Consider solar. The insurtech solution to creating a product that will provide protection for this emerging risk might include distribution and analytics. In contrast, partnering with third party capital providers can allow an insurance company to create a product with unique features such as parametric triggers that could solve a problem the traditional reinsurance industry, with its complicated and long casualty forms, has long struggled with. In doing so, third party capital can help grow the market for insurance in a way that insurtech has not yet achieved.

Conclusion

Two of the most common counterarguments for alternative capital’s Uber-like impact on the industry are that it remains largely untested capital in the face of a significant event and that we’ve hit a ceiling on the limit of third party capital in the traditional reinsurance market.

On the first point, as of this writing, it is still too early to assess how existing and new potential third party capital investors will respond to hurricanes Harvey and Irma in coming renewals. However, the combination of the ILS market’s established track record, experience paying claims and fund managers staffed by people who have long experience as reinsurers provides support that investor interest post-event will remain strong.

As for the second, in a static world, that claim may be true. But we believe there is plenty of room to grow in this market from both a supply and demand perspective. On the supply side, ILS accounts for only 0.6% of the global alternative investments market, with ample room to increase assets under management, according to the latest survey on alternative assets from Willis Towers Watson. On the demand side, around 70% of global natural catastrophe losses remain uninsured, and these risks are only growing. Insurers will require protection against aggregation and accumulation risk, and increasingly see the natural home for the tail risk in the capital markets and ILS.

We have witnessed alternative capital’s ability to attract risk to capital and lower aggregate cost of the entire value chain. Many in the industry are monitoring how insurtech will sustainably attract risk and attract customers over the long term. In the meantime, the companies that have used their time wisely in the soft market by increasing capital efficiency to source, return and attract new forms of capital the quickest will be well-positioned in the space and can happily partner with great distribution partners of their choice. Even so, the players with the lowest cost of capital can accept risk more quickly and easily and can develop products more cheaply and with unique technological features for consumers.

Insurtech will still play a pivotal role in shaping the future of the industry. Most of the participants in the insurtech space are in the early stages of capital formation. As investment scales and business models mature, insurtech should help leverage the proliferation of new sources of information and data pools to advance the securitization of different types of risk. Access to enhanced analytics helps make the underwriting and funding of more intangible risks, such as reputation and contingent business interruption, more sustainable, thereby increasing the participation of third party capital in lines of business outside property catastrophe.

In the mid-1990s, far less than 1% of global reinsurance capacity was alternative capital; by 2016, its influence had grown to nearly 15%. Here is our question for the next industry conference: What will alternative capital look like in 2030?

Key Trends in Innovation (Parts 4, 5)

This article is part of a series on key forces shaping the insurance industry. Parts One, Two and Three can be found herehere and here.

Trend #4 and #5: Innovation in commercial lines

Solutions will continue to evolve from protection to behavioral change, then to prevention — even across complex commercial insurance. Although proliferation of data and increasing transparency of both the buyer and seller will cause disintermediation for simple covers, it will also create opportunities for brokers and intermediaries to innovate solutions and channels for their B2C (non-standard risk pools, retirees/older generation, healthcare gaps) and B2B (emerging and unknown risks, cyber, global supply chains, cross-border liability, terrorism).

We believe the potential for innovation in commercial lines is actually larger than personal lines. Because of the complexity of the commercial insurance ecosystem and new emerging risks, however, the level of innovation seen so far has been relatively modest.

See also: 3 Ways to Leverage Digital Innovation  

Demand and supply of commercial insurance solutions is evolving, driven by:

  • developing markets looking for new solutions
  • the digital economy driving a move away from property risks (which are decreasing as a proportion of the overall economy) to casualty
  • increasing demand for catastrophe insurance (driven, in part, by increasing concentration)
  • macro trends creating emerging and “uninsurable” risk classes
  • new sources of structured and unstructured external data that are changing how commercial insurance is sourced, bought, underwritten/priced and serviced

The competitive landscape is also changing with large global conglomerates setting up captives to self-insure emerging market champions and the continued involvement of alternative sources of capital. Excess underwriting capacity is placing strain on profitability.

In addition, new entrants and primary distributors are seeking to take greater control of the value chain, including pricing and risk selection. This impact is further enhanced by primary carriers retaining more risk as a result of global scale and balance sheet strength providing diversification and increased understanding of their own risk from solvency modeling.

Many incumbents are already starting to respond.

In the London market, a key component of the modernization program being driven by Lloyds is PPL, a new platform where face-to-face negotiation is supported and facilitated by electronic risk capture, placing, signing and closing. Brokers are also aggressively evolving their risk analytics capabilities through the creation of open architecture platforms that deliver a two-way information flow while leveraging knowledge to shape future risk transfer solutions for evolving needs.

Many carriers are piloting monitoring technology in property (partnerships with security, pest control and energy companies) as well as casualty (sensors and wearables) to drive improvements in risk selection and risk mitigation.

How innovation will drive value creation

Risk monitoring, mitigation and prevention

One of the key trends driving change is the move from risk transfer to risk monitoring, mitigation and prevention.

Organizations are looking for risk prevention and mitigation solutions as they move away from traditional risk transfer mechanisms.

We see three main areas:

  • Telematics for commercial lines (for example in property and marine);
  • Real-time, contextual data capture and AI for risk selection, risk mitigation and monitoring, client on-boarding as well as re-underwriting; and
  • Use of preventive technologies (health tech, slip and fall, work place safety) to mitigate lost time injury and workers’ compensation losses.

Insurance sourcing, buying and selling

As businesses gain greater transparency into their risks, they will continue to optimize their risk management solutions. While direct SME cover, self-insurance and use of captives will continue to grow, emerging risks will provide opportunities for intermediaries and brokers to carve out and source new solutions for their customers. Examples of these will include global supply chains, cross border liability, cyber, catastrophe and terrorism.

Operating model improvements

The commercial market has always been very strong around product innovation, but the operating model has largely stagnated. In some parts of the market, the underlying process hasn’t really changed for more than a hundred years. System limitations further reduce the ability to leverage the data that is captured. There are significant opportunities to enhance operational efficiency in many of the basic functions, including payments and regulation and also in automating underwriting and claims.

Application of technology and data to enable digitalization

There are a number of risk classes where there is significant potential to harness technology and data to improve underwriting, risk selection and pricing, as well as to help businesses understand and then manage their exposure. These include cyber, flood and SME.

Platform-based solutions

Platform-based solutions (rather than point solutions) have the greatest potential to create value, and incumbents will need to assess how to incorporate innovative solutions based on a build, buy or partner strategy.

See also: Q&A With Google on Innovation, Risk  

We hope you enjoy these insights, and we look forward to collaborating with you as we create a new insurance future.

Next article in the series will be about Trend #6. The ability to dynamically innovate (new risk pools, new segments, new channels) and deliver on the customer promise will become the most important competitive advantage (as known risks continue to get commoditized and moved to the direct channels).

To Predict the Future, Try Creating It

Backed with new capital, powered by digital technology and using decentralized administration, a new model for transparent, simple and customer-focused life insurance couldn’t be easier to visualize. And competition from newcomers means existing providers must innovate. But what can traditional insurers do specifically to — to paraphrase management theorist Peter Drucker — predict the future by creating it?

Today’s insurance market is a customer-centric, buyer’s arena that reflects a palpable shift in power from the producer to the consumer. Insurers’ service offerings need enhancement. If it is felt little value is added to consumers’ daily lives, customers often fail to see the relevance of the importance of cover. Technology can help insurers to innovate and address this gap and deliver enhanced services.

By striving for simplicity, insurers can also increase transparency. That said, no matter how simple the front end is made for the customer, acquiring cover remains an intricate process. Advice, compliance and regulation can clog the process but offer important protection to consumers. There is a delicate balance to achieve.

See also: 7 Steps for Inventing the Future  

Letting people engage in the ways they want is crucial. Trust and advice seem somehow less important to people than before. Today, people make emotional decisions with far fewer facts, and for many a community-based recommendation will do. This combination suggests that social brokering will only grow in importance and that demand for automation with robo-advice will increase.

Consider the disintermediation — the reduction in intermediaries – that transformed High Street banking. An appointment with the manager is no longer needed to set straight one’s personal financial affairs. We fend for ourselves by banking online and using mobile-first apps to view statements, to set up transactions and to move money about. Customers now have similar expectations of life insurance.

To provide more flexibility, insurers can offer products that work in a completely modular way — products that can be built up or down and switched on and off to reflect much better how life’s risks ebb and flow. It’s likely the silo-based approach to the design and sale of line-of-business products is not sustainable. Product fragmentation with more diverse offerings will offer tailored products that fit with the way people live their lives.

Personalization gives insurers the opportunity to transform the services they offer and take a real stake in the future health of their policyholders. One way is to shift from risk identification to risk prevention that is based on knowledge of behavioral change. While using data from wearables is a start, more support can be provided — not just to the fittest customers — by developing apps and technology that engage their unique health needs.

Data from health apps, for example, is just one source that will give insurers access to a real-time view from which to assess risk, instead of relying on past data. However, continual engagement requires transformational change in the industry. To achieve this, insurers can — and are — engaging with experts and companies outside the sector. As the boundaries between insurance and adjacent businesses fade, roles and skill sets within insurance will also change, resulting in a need for more diverse recruitment.

See also: How to Build ‘Cities of the Future’  

Much is being said about big data, in particular how better use of the insights can make insurers’ operations leaner. But analysis of large datasets gives established corporates and newcomers to the industry identical insight. While agility of execution may favor startups, it’s industry knowledge that puts insurers in a strong position to turn data into actionable insights.

For more perspective on how technology is changing life insurance, click here.

Insurance Technology Trends in ’17, Beyond

Bill Gates famously said that we always overestimate the amount of change that will occur in the next two years and underestimate the change that will occur in the next 10. Looking back 10 years, we find a world devoid of iPads, iPhones, mobile apps, big data technologies, the Internet of Things, viable driverless cars or even social media beyond a niche early adopter group. We also find a world without direct online sales of commercial insurance, without persistent low interest rates, without widespread use of catastrophe bonds and without VCs who could spell “insurance.”

But while most insurers believe that massive changes may occur in the next decade, few believe that the next two years will be substantially different from the last two when it comes to the need for significant product changes, the impact of predictive analytics or the threats of new digital distributors. Insurers devote less than one cent of each premium dollar today to transforming their technology capabilities to thrive in the next decade.

Insurers Making Technological Progress

Although technology spending is essentially flat, and less than a quarter of it is spent on transformational initiatives, on average, insurers are making progress. Use of predictive analytics is growing, and 18% of insurers believe it will have a materially positive effect on their business this year. Big data technology is expanding, as well, even though it continues to be directed not at big data sets but at solving enterprise data problems. And 10% to 20% are already embracing machine learning to improve their rating algorithms. Other AI usage is still in the potential stage, with insurers exploring the possibilities of leveraging machine vision for property underwriting and claims, and natural language processing for customer service.

Digital investments continue, even if there is still little agreement about what constitutes a “digital strategy” for insurers. Portals are enhanced, and mobile is deployed as carriers seek to better engage their customers, distributors and other stakeholders.

See also: 10 Trends at Heart of Insurtech Revolution  

Core system replacements are still painful and expensive but necessary to enhance the speed of product launches, improve digital service and data accessibility and reduce technical risk. Insurers have a new willingness to consider cloud-based core systems, with 20% already having deployed some core capabilities in a cloud environment and the same number planning pilot programs this year. The maturity of cloud providers and the growing awareness of their own limitations are mitigating carriers’ security concerns.

Security, meanwhile, continues to consume 10% of IT budgets, with no end in sight, and additional regulatory requirements add compliance pressure to certify procedures and formalize CISO roles.

A boom in analytics and digital across multiple industries is making it harder for insurers to find and retain IT talent, which is driving new strategies, from partnering with colleges and universities to develop new sources of talent to improving ease of employee return, to reacquire experienced staff.

With flat resources and burgeoning needs, 40% of insurers are improving governance to make sure resources are allocated effectively and aligned with strategy.

Laying Bare the Underlying Structure of the Insurance Industry

Meanwhile, improved technology lays bare the underlying structure of the insurance industry. It’s not only distributors standing between insureds and primary insurers that are intermediaries facing the threat of disintermediation—it’s every link in the value chain between people or organizations with risk and pools of capital willing to take on that risk for a profit. This means primaries and reinsurers, as well. Alternative distribution, distributor-developed programs, reinsurer-funded insurtech startups and catastrophe bonds and other risk derivatives all threaten the traditional insurance value chain. All of these stem from the technology-enabled democratization of the ability to analyze, package and transfer risk.

At the same time, technology offers the opportunity to ask new questions about the structure of insurance offerings. Is there any reason why minimum required coverage should be sold in all cases bundled with additional coverages, advice, service and risk management? Insurers are finding that some market segments prefer only one or two of these, while there are additional opportunities to monetize some of these offerings separately.

Many insurers are unsettled by the emergence of well-funded insurtechs, whether they are new competitors or providing enhanced capabilities to existing competitors. Despite the billions invested, insurtechs will not put major insurers out of business or radically transform the market in the next two years. Many will not even be in business in two years.

The Imperative to Learn from Insurtech

However, insurtechs will raise the bar on customer experience and process efficiency, as well as on the use of analytics to drive product and processes. They will show insurers how to expand the market by profitably serving underserved segments, and demonstrate how to incorporate emerging technology into key business processes. Insurers that do not learn from insurtech will lose out to those that do.

In part driven by the example of insurtechs, insurers are expanding their own formal innovation programs. These may take the form of a small group of educators and evangelists within the company, a dedicated R&D organization with a fully equipped lab and a protected budget or direct investing in startups.

See also: Insurtech: Unstoppable Momentum  

Two Ingredients of Successful Innovation

Whatever innovation path insurers take, the primary determinant of success is the CEO’s and business unit leaders’ commitment to operationalize innovations, and their tolerance for the risk of failure. Without these two ingredients, insurers may perform “innovation theater” but are unlikely to benefit from any discoveries, and are unlikely to be prepared when the next decade of change sneaks up on them.

10 Trends at Heart of Insurtech Revolution

As the insurance industry enters a period of profound change, we at Eos use a concept called the 20/20 dynamic to illustrate the point:

On a conservative basis, we believe most insurers risk losing at least 20% of their business to disruption. On the flip side, for those that embrace innovation there is an opportunity to grow their business by 20%.

Our goal is to ensure our strategic investors are on the right side of this equation.

Insurtech represents a unique opportunity for insurers to evolve their business model. Insurtech is not necessarily about disruption, but more an opportunity to take advantage of technology and data to create innovative solutions, reduce costs and capture greater value for customers, brokers and intermediaries, underwriters and service providers.

At one level, active participation is required just to meet the basic requirements of playing in the new market. For those committed to a strategic approach, insurtech can help drive true competitive differentiation, while enabling measured bets for the future.

See also: Insurtech: Unstoppable Momentum  

Underpinning this transformation are 10 key trends that we have identified and believe will be at the heart of the insurtech evolution:

  1. Insurance, as we have it known it historically, will be bought, sold, underwritten and serviced in a fundamentally different way within the next three years
  2. External data and contextual information will become increasingly more important than historical internal data for predicting risk and pricing
  3. A majority of the simple covers will be bought in standard units through a marketplace/ exchange, permitting just-in-time, need and exposure based protection through mobile access
  4. Solutions will continue to evolve from protection to behavioral change then to prevention — even across complex commercial insurance
  5. Although proliferation of data and increasing transparency on the buyer and seller will cause disintermediation for simple covers, it will also create opportunities for brokers and intermediaries to innovate solutions and channels for their B2C (non-standard risk pools, retirees/older generation, healthcare gaps) and B2B (emerging and unknown risks, cyber, global supply chains, cross-border liability, terrorism) customers
  6. The ability to dynamically innovate (new risk pools, new segments, new channels) and deliver on the customer promise will become the most important competitive advantage (as known risks continue to get commoditized and move to the direct channels)
  7. Internal innovation, incubation and maturing of capabilities will no longer be the optimal option; dynamic innovation will require aggressive external partnerships and acquisitions
  8. Simple “Grow or Go” decisions of the last decade will be sub-optimal, as the dust settles in insurtech; building in future optionality and degrees of freedom will be the key
  9. Consolidation just for economies of scale will provide increasingly less marginal value in non-life as well as life insurance; real value creation will come from “economies of skill” and digital capabilities
  10. Deep learning (next generation of AI), blockchain and genomics technologies will improve financial inclusion and better meet the needs of the under-insured and uninsured

We have linked the above trends to analysis of how profit pools will change over time to build an investment strategy that also focuses on platforms or clusters that allow us to build more compelling propositions by connecting related players in adjacent parts of the value chain.

Three areas of initial focus are:

1. A digital front office solution that leverages an open architecture platform developed by Convista (OneDigitalOffice), augmented by relevant startups including, for example, on-demand insurance by Oula.la and social media adoption by Digital Fineprint.

The ability to drive dynamic innovation is driven by technology stack/system flexibility to respond quickly to customer needs. New risk pools, new products and new ways to reach customers will place massive pressure on traditional systems, making a dynamic digital front office key to execution.

  • 360-degree multi-channel (direct, field sales force, internal sales force, independent agents/brokers) connectivity
  • Augmented functionality across the value chain from sales/distribution through underwriting, binding and servicing
  • Sales funnel optimizer (sales force effectiveness) — inquiry/quote, quote-to-submission, submission-to-bind ratio
  • Sales force/intermediary (broker/agent) segmentation and performance management

As an example, the impact of the sharing economy and need for on-demand insurance will require instant pricing and cover that switches on and off at point of sale to meet the needs of the customer.

2. An end-to-end claims solution developed by RightIndem and supported by additional capability from other technology providers

The claims space is an interesting one; it represents the largest individual expense on any P&C insurer’s P&L but conversely has seen very little innovation. This is now starting to change. RightIndem has developed a platform that achieves significant improvements in customer satisfaction while significantly reducing the cost of managing the claim. This is a win/win for the customer and the insurer and in our view a classic enabler technology that takes an existing function within the insurance value chain but does it much more effectively and with the interests of the customer at its core.

See also: Insurtech Checklist: 10 Differentiators  

3. Artificial intelligence (AI) with an initial focus on life and health insurance developed by Gen.Life

We are particularly excited about the combination of AI and the latest health technology to transform insurance. Examples include Livingo Health, which combines a blood glucose monitor support and intervention to help coach people through diabetes, and Cycardia Health, which employs machine learning predictive analytics software to categorize abnormal circadian patterns in otherwise healthy breast tissue to provide early detection of breast cancer. These types of technology will allow the early detection of potential diseases so that preventative treatment can be started much earlier, dramatically improving chances of success. Rather than life and health insurance being about prospective payments after an event, they can become the key mechanism for deploying technology to allow people to enjoy healthy lives.

The insurance industry will look very different in five years, but more importantly there is an opportunity to drive huge benefits to society through reducing under-insurance and supporting the transition from protection to prevention.