Tag Archives: insurance development forum

An Opportunity in Resilience Analytics?

In my post last month, I discussed why the insurtech revolution should be focusing more on addressing the protection gap, thereby growing the pool of insurable risks, rather than figuring out how best to eat the insurance incumbents’ lunch.

At a conference in February, Tom Bolt of Lloyd’s noted that an increase of 1% in insurance penetration can lead to a 13% drop in uninsured losses and a 22% drop in taxpayers’ share of the loss. The key to increasing penetration is lowering distribution costs to make products more affordable. That is where insurtech can come in. Many recent startups have business models looking to tackle the excessive intermediation costs that exist in the current insurance value chain.

Sadly, when a catastrophe strikes areas of low insurance penetration, those communities not only suffer from the difficulties of having to seek aid—which can take three-plus months to reach affected zones—but also face the prospect of a significant drag to economic growth. It is unsurprising, therefore, that governments in vulnerable countries are keen to improve their “resilience” and seek solutions to better prepare themselves for catastrophes by working with the likes of the World Bank, the UN and the recently established Insurance Development Forum (IDF). Interestingly, AIR Worldwide announced recently the Global Resilience Practice, which will be led by former U.S. presidential adviser Dr. Daniel Kaniewski.

See also: InsurTech Need Not Be a Zero-Sum Game  

As well as providing low-cost distribution models in new markets, a related opportunity I see for insurtech is working together with the insurance industry in the growing field of resilience analytics. As Robert Muir-Wood recently pointed out on RMS’ blog, the claims data gathered by insurers — which historically has been used for the pricing and managing of risk — have the potential to also be used to reduce the potential for damage before the event. Insurtech companies could work with government authorities to pool this claims data, leveraging it with other key data from external sources and then using the results to influence urban resilience strategies. There are inevitable doubts over the willingness of insurers to share their data, but agile and thoughtful startups are likely better placed to be able to find insights in a world of abundant unstructured data than the more technologically challenged incumbents.

The current size of the protection gap is a failure of the insurance industry, and any companies that can help address it will not only be first movers in new markets but will also be adding social value and much-needed resilience to vulnerable communities all over the world.

InsurTech Need Not Be a Zero-Sum Game

This summer, I have attended a number of disruption/innovation insurance industry conferences in London that often, to varying degrees, come down to a debate regarding the extent to which InsurTech startups will be able to come and eat the lunch of industry incumbents. There is little argument that, should the insurance industry fail to better engage with its customers and continue to poorly communicate its social value in protecting people, communities and assets somewhere else will transform what today for many is a “grudge transaction” into a delightful relationship.

However, I believe InsurTech does not have to be a zero sum game. I am a proud member of the International Insurance Society (www.internationalinsurance.org) led by Michael Morrissey. In Singapore at the IIS annual conference, a keynote presentation was delivered on the recently formed Insurance Development Forum (IDF). The IDF was formally launched in April and is a collaboration between the insurance industry, the World Bank, the UN and various other institutions. The IDF is chaired by Stephen Catlin, with Rowan Douglas leading the Implementation Committee that includes industry heavyweights such as Dan Glaser, Nikolaus von Bomhard, Greg Case and Inga Beale. Its mission is to incorporate the insurance industry’s risk management expertise into governmental disaster risk reduction and to give insurance a larger role in providing resilience to communities all over the world.

In a speech at the conference, IDF Chairman Stephen Catlin noted, “We talk about innovation and new products. The reality is we are not even selling well the product we know and love dearly.” I believe the less insular InsurTech community — with its diverse skills sets (often from outside of the insurance industry) — can help insurers start to address the obvious misunderstanding consumers, governments and regulators share of the social value of the insurance product. Sam Maimbo of the World Bank, who sits between deep technical insurance teams and the public sector, noted he spends 70% of his time explaining what the industry has to offer. Addressing this communication gap has parallels to what many InsurTech companies are trying to do in providing better engagement with consumers than is currently provided.

There is real opportunity for InsurTech to work with the insurance industry in addressing blockages in the system that, if unlocked, would drive increased demand and grow the overall insurance pie. We are seeing a bit of this in microinsurance with companies like MicroEnsure and Bima providing low-cost insurance solutions to customers that, before recent technological advances, were just not possible. For instance, we need to see more examples of smart contracts founded on blockchain technology. In Africa, it is now possible to buy crop insurance through a mobile device that pays out based on a parametric weather-related trigger through a blockchain-validated third party source that almost eliminates the cost of handling a claim.

I am confident we are at the start of this kind of innovation and look forward to seeing more InsurTech companies look to grow the overall industry pie for the benefit of themselves and society as a whole.