Tag Archives: evan greenberg

Insurtech Is Much More Than Just Hype

Two weeks ago, during an on-stage conversation in Las Vegas with Munich Re board member Lisa Pollina, Chubb CEO Evan Greenberg commented that insurtech’s promises of transformation are “just hype.” With that, Greenberg put a spotlight on a debate that has been percolating since the term “insurtech” was coined around 2010, when Germany-based Friendsurance created a peer-to-peer insurance community.

There is no way to know whether Greenberg’s comments were meant to provoke and engage the audience – made up mostly of entrepreneurs, insurtechs, investors and insurance industry leaders  – or whether he meant exactly what he said as dismissively as it sounded.

Either way, he was mostly wrong – and a bit right. 

Insurtech Confusion

Not only does our industry use the word “insurtech” inconsistently, but we can’t even agree on how to spell it – “insurtech” or “insuretech” and whether to capitalize it. (Regardless, let us agree that insurtech refers to the use of technology innovations designed to significantly reduce cost, increase efficiency and improve customer experience in legacy insurance industry models.) 

“Insurtech” is a combination of the words “insurance” and “technology” and was inspired by the earlier term “fintech,” which has now spawned an entire generation of “____tech” abbreviations, including in our own industry: ClaimTech, PropTech, MarTech and more. 

Entire global ecosystems have emerged to finance, support and service the global insurtech industry, from accelerators, incubators, college programs, conference and networking events and dedicated media sites and publications to new investment funds and models.    

Evidence That Insurtech Is Real

Saying something is hyped implies a misleading exaggeration of something’s importance or benefits. The insurtech phenomenon is many things but definitely not hype. Insurtech is a movement, and it is very real and highly transformative. One good measure of its importance is the success of the very event where Mr. Greenberg offered his comments: InsureTech Connect. Over 6,000 of the faithful braved the lingering risks of a pandemic to make the pilgrimage to Las Vegas to attend ITC. 

The underlying conviction driving founders and backers of insurtechs is that the insurance industry is ripe for innovation and disruption. Insurtechs explore opportunities that large conventional insurance firms are less interested in or equipped to exploit, such as offering hyper-personalized insurance policies, usage-based insurance and parametric insurance and using the new volume of data streaming from IoT-enabled sensors and devices to price premiums more dynamically and contextually.

Included in the ITC audience were a healthy number of current and potential insurtech investors whose industry is wagering tens of billions of dollars of capital on the prospects of insurtechs. 

In fact, according to a July 2021 McKinsey report titled “Insurtechs are increasingly ripe for insurer investments and partnerships,” the analysis of 2,000 global insurtechs reveals rapid growth, evolving product focus and a growing crop of innovative opportunities. The report also describes how rapidly insurtech funding has grown, identifying 1,719 deals from 2010-2021 totaling almost $25 billion globally.

Insurtech Categories

In a March 2021 Gartner report titled “Top Trends in Insurtechs for 2025,” analyst Kimberly Harris-Ferrante identified two distinct categories of insurtechs – challenger insurers and emerging solution providers – and predicted that both “will continue to gain traction and reshape the insurance industry through 2025.”  

One might argue that the challenger insurer category includes some insurtechs that do not yet pose a real threat to conventional insurers; Root, Lemonade, Metromile and even Hippo come to mind. To date, their stock market performance has been disappointing, and this could well be the category of insurtechs for which Mr. Greenberg’s comments were intended.

However, the insurtech category of emerging solutions providers has not for the most part disappointed. Many of these companies have provided attractive exits to their founders and private equity and venture capital investors as they have taken themselves public, merged with competitors or been acquired by conventional insurers. 

See also: Boosting Cyber Hygiene With Insurtech

Greenberg Was Right, But Only in Part and Only for Now

If Greenberg meant that technology and hype do not change the fundamental fact that insurance is at its core the art and science of taking risk, then perhaps he was right – in part. It’s hard to argue that a company formed in the past 10 years or less could have the depth and breadth of experience of one that has been in the business for a century, or that it can meaningfully compete with one of the largest and best-capitalized competitors in the industry.

Consider that only days after Greenberg’s comments, Chubb announced the acquisition of Cigna’s Asia business to increase their A&H market reach for $5.75 billion in cash. Conventional insurers are certainly best at the “art” aspect of risk taking.   

But as far as the value of experience in the “science” part of risk taking, legacy approaches and models could actually become the Achilles heel of incumbent carriers. New technology-enabled information sources such as connected cars, homes and people coupled with artificial intelligence and machine learning are replacing previously retrospective underwriting and pricing models with real-time, contextual and dynamic data models that enable insurers to price risk more accurately, fairly and ultimately more competitively and profitably. 

The insurtech movement is real and important and exciting and valuable and is quickly evolving. It can be described in many ways – but not as mere hype.

InsureTech Connect: All About the People

Participating in ITC2021 was a blast! It was great to see so many people in person for the first time in a couple of years. But aside from the joy everyone was experiencing in just being together, there was a serious undercurrent to the event. In fact, as I polled individuals on their impressions of the event, many discussed how the participants came with a mission… a purpose… intention… and were serious about fulfilling their individual missions by capitalizing on the convergence of so many innovative companies and thought leaders.

If nothing else, ITC2021 demonstrated that innovation is alive and well in insurance, and the transformation of the industry is accelerating.

In his keynote, Evan Greenberg from Chubb stressed that all the technology advances do not change the fundamental nature of the insurance business – it is still about “the art and science of taking risk.” I couldn’t agree more. In fact, I have made similar statements myself.

Looking at the P&C industry, one of the overarching trends is the move to more and more specialization. This translates into a deeper understanding of the risks faced by individual and business customers – not just in the large pool but at a micro-segmentation level, as well. The insights and experiences about those risks translate into new products and coverages; enhanced loss control engineering and safety advice; and specialist firms to distribute, underwrite and service the products. This is not to say that the multi-line, general purpose companies will falter. On the contrary, they are participating in this general trend in each of the segments they serve.

Wait – I was supposed to be talking about the cool technology solutions and the innovations that are changing the industry, right? How did I get off track? As I see it, the amazing advances in technology, the innovative applications of technology by insurtechs and others, and the emergence of startups are actually quite consistent with and supportive of the increasing focus on risk expertise (and the value of insurance professionals). We are not going to automate away the roles of agents, underwriters, adjusters and others.

See also: Tomorrow’s Insurance Is Connected

There is no question that I was very excited to learn about the evolution and success of many insurtechs, discover new entrants with interesting propositions and track the innovations that incumbent players are incorporating into their solutions. They are catalysts for industry transformation. And they do offer great potential to automate tasks and workflows, provide new insights to improve decision making and provide opportunities for insurers to create new value propositions for customers.

But in the end, this industry is all about the people. Technologies will augment human expertise to improve efficiencies, enable new products and design better ways to sell and service insurance. But the strengths of the industry have always been its people and its passion for helping individuals and businesses to address the risks inherent in their lives and business operations. That passion was evident in the many serious and purposeful discussions that took place over the three days in Las Vegas.

Data Prefill: Now You See It, Now You Don’t

At children’s birthday parties, a guest magician may utter the well-worn phrase, “now you see it, now you don’t” – and a bouquet of flowers disappears. That trick, a heartwarming memory for many, also relates to the vast quantity of questions on an application for commercial lines insurance.

It’s daunting for a business owner to come face to face with the numerous blanks on an insurance application. Much of the required information is not immediately at hand – or not understood at all. For distributors, the familiarity with the content is certainly there – at least for seasoned personnel. But the time it takes to fill empty boxes keeps them away from more useful interactions with customers. On the other side of the transaction, company underwriters need information to price the risk. For a very long time, the industry has been at a stalemate.

A conundrum? Not any longer.

See also: 3 Keys to Selecting the Right Platform  

Enter data prefill and new data sources. Data prefill certainly isn’t new – personal lines insurers have employed it for some time. But, the impetus to use the capabilities in commercial lines has not been present until now. Business owners require a simpler application process, and distributors need to be freed from clerical tasks. Undertaking a data prefill initiative may be a simple decision for some organizations – but for others it may be a challenge. In either instance, SMA has a five-step analysis process (Why, Who, How, Where and What) that can guide any organization looking at data prefill. It’s important to approach the initiative with a measured assessment to ensure a successful outcome, even if everyone is already on board with data prefill.

Given the press that organizations such as Cake Insure and Pie Insurance have received, it might be easy to assume that data prefill is all about small business and workers’ compensation. Clearly, there are significant opportunities in the small business arena to condense insurance applications down to three, four or five pieces of data. Evan Greenberg, CEO of Chubb, has declared that the current 30 questions in small business applications will be condensed to around seven within 18 months. However, it would be a mistake to assume that data prefill is just about one commercial lines segment.

In fact, insurers covering all but the most complex jumbo commercial lines have an amazing opportunity to use the same data integration techniques for data prefill to automatically integrate data into more complex lines of business – to improve data accuracy and thus drive profitability. Regardless of the line of business or size of the business insured, augmenting application data with new, emerging data can support underwriters in their decision making. And, perhaps, it can eliminate the need to obtain information from business owners and distributors and promote a much greater degree of accuracy. SMA’s recently released report, Transformation in Commercial Lines: The Five Steps for Data Prefill, provides a view of this.

See also: The Problems With Blockchain, Big Data 

This brings us back to “now you see it, now you don’t” and the disappearing questions on commercial lines applications. Having spent a long time as an underwriter, I recognize that it is unsettling to think about losing the data elements that one has relied on to make decisions. However, with data prefill, that data can be found and used in many ways: eliminating questions on applications for small businesses and prefilling internal systems for more accurate decisions on complex lines. No one will be deprived of data – the source will just be different – an insurance magician’s answer to several challenges!

An Insurtech Reality Check

If you’ve got your eyes set on technology that won’t move the needle this year, it’s time to reevaluate what can provide bottom-line results in the short term. AI and machine learning will have their day in commercial insurance. But what are you doing today to drive tangible business results? Insurtech does not have to be a “pie in the sky” endeavor. It can be deployed right now.

Just a year ago, the insurtech conversation was all about innovation labs, blockchain, IOT, wearables and, of course, AI. Now, the dust has settled a bit, and the realization has set in that those bright, shiny objects may take years to make a real impact on re/insurers’ bottom lines. While they are still undoubtedly vital to innovation, long-term success and survival, it’s important to strike a balance between “pie in the sky” and practical. Last year’s devastating catastrophes served as a catalyst for more focus on short-term solutions that can improve bottom lines—now. Not years from now. This swing to here-and-now solutions was recently articulated in an article by Ilya Bodner, founder of insurtech startup Bold Penguin, where he notes:

“Insurtech is moving rapidly now into commercial lines where the attention and intent is focused on solutions that will deliver a strategic and immediate return on investment (ROI)….Insurers are moving away from bright, shiny, insurtech objects and toward service partners, emerging technologies and solution providers with a return on investment more immediate than promised for five years down the road.”

I second this sentiment. P&C risks are changing, as evidenced by 2017’s $144 billion in global insured losses and a commercial lines combined ratio of 104%. And, while a strong market made many insurers whole last year, that is not a guarantee going forward. The next hurricane, flood or wildfire won’t wait for you to innovate. Insurers must find ways to bring innovation to their bottom lines now. Don’t get me wrong, pie in the sky is good—and it is necessary. But insurers must strike a balance between their long games and short gains. You need both.

Caution: The hard truth

I don’t have to tell you that following last year’s back-to-back hurricanes there was an outcry about how the models got it wrong (of course, it didn’t help that some modelers put out early and grossly inaccurate estimates that incited market confusion and concern). Here’s the hard truth: Insurers also got it wrong. Got it wrong by using a single view of risk; by not taking advantage of innovations in data; by taking too long to operationalize data; by waiting for the perfect, utopian platform (in-house or commercial) to be built or delivered; by expecting legacy analytics software to deliver the scalability, reliability and insight required to act efficiently and effectively. No longer can insurers approach risk The. Same. Old. Way. Risk is changing. You must change with it. And the good news is, integrating insurtech in a way that helps you better assess and manage the evolving landscape of catastrophe risk doesn’t have to be time-consuming or costly, and it can produce immediate results.

Here are a few of the challenges that insurers face that insurtech can help them address, in the here and now:

  • Reality: Models provide a “framework for thinking; they don’t represent truth.” Evan Greenberg, chairman and CEO of Chubb, recently stated, “Given there have been three one-in-100-year floods in 18 months, how can Harvey represent a 1% chance of occurring, as the models suggested? Models provide an organized framework for thinking; they don’t represent truth.” Now, we all know models serve an important purpose, and our clients can derive insights from modeled data within our platform. But models must be taken with a dose of good old-fashioned human judgment. Models and the outputs are nuanced. It’s all about identifying the right models and model components that best represent your lines of business, geography and business practices. But it’s also about balancing resources and business value with this expensive exercise. You need to have an intelligent conversation about model nuances—and figure out the “so what” questions that models provoke but don’t answer.

See also: Can Insurtech Rescue Insurance?  

  • Reality: You can’t handle all the data. There’s a gap between the wealth of data now available and an insurer’s ability to quickly process, contextualize and derive insight from that data. Insurers are generally frustrated by a lack of process and an easy way to consume the frequent and sophisticated data that expert providers put out during events like Harvey, Irma, Maria, the Mexico City earthquake and the California wildfires. Beyond the sheer volume of data, insurance professionals are expected to make sense of it by using complex GIS tools. In reality, you have all this data but no actionable information because you can’t effectively make sense of it. Even insurers with dedicated data teams and in-house GIS specialists struggle to keep up. (SpatialKey tackles this problem by enabling expert data from disparate sources (e.g. NOAA, Impact Forecasting, JBA, KatRisk) and putting it into usable formats that insurers can instantly derive insight from and deploy throughout their organizations. We do the processing work, so our clients can focus on the analysis work.)
  • Reality: Your best data is your own, but you’re not benefiting from it. It’s one thing to be in possession of data, and quite another to be able to realize its full value. Data alone has little value. One of our clients, for example, needed a way to re-deploy its own data to its underwriters, so we helped the company integrate an underwriting solution that would put its data, along with expert third-party data, in the hands of its underwriters—all from a single access point that would consolidate disparate sources and drive enterprise consistency.
  • Reality: Your customers expect on-demand; you should, too. Your customers don’t want to wait for a quote or go through a lengthy process to submit a claim. Our society is instant everything, and while commercial insurance may not be held to the same real-time pressure as personal lines, it is moving in that direction. When you need the latest hurricane footprint, you need it now, not four hours from now. When an earthquake strikes Mexico City, you need to understand your potential business interruption costs today. When a volcano is erupting and no drones are allowed in the surrounding airspace, you need a geospatial analytics solution that can help you provide advanced outreach to insureds and do the financial calculations to understand actual exposure. Likewise, when your underwriters are trying to win business, you’d rather they spent their time evaluating the risk than searching for information.

Who knows what this hurricane or wildfire season will hold. The question is, are you prepared to handle it better than last year? What changes have you made to strengthen your resilience and that of your insureds? What has been learned and applied for meaningful results? It’s a misnomer that insurtech and disruption go hand in hand. Some insurtech solutions are built to complement—to drive efficiencies, cost savings and underwriting profitability—not necessarily replace existing processes or legacy systems. Data and analytics is an area where insurers, brokers and MGAs can still improve their bottom lines yet in 2018.

See also: To Be or Not to Be Insurtech  

Take down the pie and dig in

My intention is not to dilute the importance of up-and-coming insurtech technologies, like AI and machine learning. They will undoubtedly help insurers compete as risks become more complex. My point is that those longer-term technological investments must be tempered with an understanding of what technologies will help move the needle in the present. You can strike a balance between pie-in-the-sky insurtech and insurtech that works for you now.

Why #Insurtech Doesn’t Matter

Last week, I included my summary of what we do in Insurance:

Insurance is a business where we provide people with peace of mind, allowing them to know that there will be a monetary solution provided when they suffer a major loss/accident (or minor, depending on coverage purchased). This loss/accident can either in the form of health, death or to some sort of property, and the solution is at a time when a person typically needs it most. That is the core of our business. 

This summary also relates to the three pillars of Insurance, which I mentioned a few weeks ago:

  1. Pricing –  Was the policy I purchased priced properly to take care of the costs of the insurance company running its business, and will it have enough?
  2. Reserves – to pay my
  3. Claims – in a timely manner.

As with many of us, I read and follow a lot of news on insurance and insurtech. Every day, my LinkedIn feed and email inbox is flooded with insurtech news, including new investments in startups, new insurtech partnerships formed, expansion of startups into new markets/states, etc.

I love reading all of this – as it shows the growing level of awareness of how new technology solutions can enhance the customer experience and also help companies with operational efficiency.  I am a huge fan of what the future entails.

However, I am also cautious of the risks currently present in the world of Insurance (and the world in general!).

See also: Insurtech Innovator – CyberWrite  

Currently, the pace of change and adoption of insurtech solutions is faster than ever before. It seems there are no signs of slowing down. However, as with any good plan, it is important to have risk mitigation and contingency plans.

The new technology solutions that we are building for the insurance industry (i.e., insurtech), are just an enabler. It’s not that these solutions don’t matter…. But, if the risks are not managed properly and plans are not in place for these solutions, then the progress of the many insurtech initiatives may slow down, or in some cases, not be around to matter.

What are some risks as it relates to insurtech? I will focus on three, which have been themes in the news for the past couple of months. In fact, these are risks that exist in our industry regardless of insurtech.

By no means are these the only risks that need to be mitigated, yet I do see these as some of the big ones:

  1. Macroeconomics
  2. Weather/Natural Disasters
  3. Regulation

Macroeconomics

Since 2008, global stock markets have been on a tear. It’s no wonder that there is so much money pouring into insurtech investments.

What happens if there is a market correction and we go into another global recession? Will we see the same sort of investment in insurtech solutions as we have been seeing?

And that’s just the equities market. What about fixed income?

In this FT article from August, Chubb’s CEO Evan Greenberg warns about the low interest rate environment and its effect on insurers. He says, “Many companies are not earning their cost of capital — and many are losing money, or will lose money in the future.” This is a big deal. This may have an impact on an insurer’s ability to pay claims in the future. Obviously, insurers will have to keep their solvency requirements due to regulation, but if this continues, we could see massive premium increases for customers and withdrawal from certain product lines.

Stock markets and fixed income aside, the next big risk that could affect the progress in insurance and insurtech has to do with climate change.

Weather/Natural Disasters

Over the past few months, we have seen Hurricanes Irma, Maria and Harvey ravage much of the Southeastern U.S. and islands nearby. California has been blazing in fire. In other parts of the world, there have been many natural disasters, too. I’ve seen a number of articles on this subject. They range from “how to claim from your insurance company in wake of natural disaster” to “how much insurers will be out of pocket for weather-related claims.” With climate change increasing, the unknowns also grow. I’ll admit, I’m not an expert in catastrophe pricing, but I would suspect that this increasing factor will make it much more difficult to price products.

So, equities may fall. Interest rates may not come up. And natural disasters could be on the rise. These risks are big, but the last one could take the cake: regulation.

Regulation

President Trump has signed two executive orders – one that will allow customers to purchase cross state border and one that limits funding for Obamacare (though that has seemed to change course).

The impact that these have on the U.S. healthcare and insurance market is unknown for now. This is a topic that deserves its own write-up, and I plan to cover this sometime in the near future.

Regulation can really screw things up; if not looked at properly. I wrote about government collaboration a few weeks ago. Some governments are more open to collaborating with incumbents to better understand fintech and insurtech. However, for those of us who have worked with regulators, we know that their minds can change quickly, and knee-jerk reactions can be made, forcing our plans to change.

Different product lines have different opportunities and different risks

For some lines of insurance, mainly P&C, insurtech has a huge play, and there are many opportunities to disrupt and change the current Insurance value chain. If autonomous cars come into existence, the whole auto Insurance industry will change. For property insurance, smart homes and devices to monitor buildings will help to better optimize pricing and policies for consumers.

For travel Insurance, insurance to protect material objects (mobile phones, electronics, etc), UBI and insurance for the sharing economy, there will be opportunities to disrupt and enhance the customer proposition, too.

For life, health and catastrophe, it becomes a different story.  We see a lot of term life online, but what about whole life, universal life, annuities, etc? What about other, more complex products for individuals/businesses (disability, long-term care, commercial)?

See also: Innovation — or Just Innovative Thinking?  

My biggest worry comes from within these types of products. My years in insurance have primarily been on the life, health and annuities side. The pricing structures of these types of products have a longer tail than P&C. Health is annually renewable, but the cost of healthcare and frequency of visits to doctors have been increasing, which will make pricing more difficult.

So what can we do about this?

First and foremost, every startup and incumbent needs to have a risk mitigation strategy and contingency plan as it relates to their insurtech initiatives. It is easy to get caught up in the excitement of what we are doing, and talking about risk is not always the most fun. The risks above are just a few macro ones. Each company and each initiative will carry its own set of risks, which need to be assessed accordingly.

Second, collaboration continues to be key. Especially cross-border collaboration. We need to share best practices globally. Regulators will also need to continue to work with incumbents and startups to understand the solutions being put in place and risks to customers.

Third, actuaries need to get with it – quick. They need to use their skills of actuarial modeling and work with the data scientists out there to better understand all the data points available to them and how this can be incorporated into pricing models.

The marrying of actuarial pricing principles and data science will be one of the most powerful forces of change in our industry. Incumbents have been managing risk for hundreds of years. The nature of managing risk has changed with the explosion of data. It’s no longer about just looking at what has happened in the past and predicting what will happen. Let’s also get underwriters in this conversation.

We need to find opportunities to know what is working where, and what is also not working, so we can plan accordingly. We are all in this together, and we need to help enhance our industry together. We all have a collective responsibility, ultimately, for our customers.

This is a repost of my article on Daily Fintech. I look forward to reading your comments on this article and engaging in some discussion.