Tag Archives: insurance technology

trends

InsurTech Trends to Watch For in 2016

The excitement around technology’s potential to transform the insurance industry has grown to a fever pitch, as 2015 saw investors deploy more than $2.6 billion globally to insurance tech startups. I compiled six trends to look out for in 2016 in the insurance tech space.

The continued rise of insurance corporate venture arms

2015 saw the launch of corporate venture arms by insurers including AXA, MunichRe/Hartford Steam Boiler, Aviva and Transamerica. Aviva, for example, said it intends to commit nearly £20 million per year over the next five years to private tech investments. Not only do we expect the current crop of corporate VCs in the insurance industry to become more active, we also expect to see new active corporate VCs in the space as more insurance firms move from smaller-scale efforts — such as innovation labs, hackathons and accelerator partnerships — to formal venture investing arms.

Majority of insurance tech dealflow in U.S. moves beyond health coverage

Insurance tech funding soared in 2015 on the back of Q2’15 mega-rounds to online benefits software and health insurance brokerage Zenefits as well as online P&C insurance seller Zhong An. More importantly, year-over-year deal activity in the growing insurance tech space increased 45% and hit a multi-year quarterly high in Q4’15, which saw an average of 11 insurance tech startup financings per month.

In each of the past three years, more than half of all U.S.-based deal activity in the insurance tech space has gone to health insurance start-ups. However, 2015 saw non-health insurance tech start-ups nearly reach parity in terms of U.S. deal activity (49% to 51%). As early-stage U.S. investments move beyond health coverage to other lines including commercial, P&C and life (recent deals here include Lemonade, PolicyGenius, Ladder and Embroker), 2016 could see an about-face in U.S. deal share, with health deals in the minority.

Investments to just-in-time insurance start-ups grow

The on-demand economy has connected mobile users to services including food delivery, roadside assistance, laundry and house calls with the click of a button. While not new, the unbundling of an insurance policy into financial protection for specific risks, just-in-time delivery of coverage or micro-duration insurance has already attracted venture investments to mobile-first start-ups including Sure, Trov and Cuvva. Whether or not consumers ultimately want the engagement or interfaces these apps offer, the host of start-ups working in just-in-time insurance means one area is primed for investment growth in the insurance tech space.

Will insurers get serious about blockchain investments?

Thus far, insurance firms have largely pursued exploratory investments in blockchain and bitcoin startups. New York Life and Transamerica Ventures participated in a strategic investment with Digital Currency Group, gaining the ability to monitor the space through DCG’s portfolio of blockchain investments. More recently, Allianz France accepted Everledger, which uses blockchain as a diamond verification registry, into its latest accelerator class. As more insurers test blockchain technologies for possible applications, it will be interesting to monitor whether more insurance firms join the growing list of financial services giants investing in blockchain startups.

Fintech start-ups adding insurance applications

In an interview with Business Insider, SoFi CEO Mike Cagney said he believes there’s a lot more room for its origination platform to grow, adding,

“We’re looking at the entire landscape of financial services, like life insurance, for example.”

A day later, an article on European neobank Number26, which is backed by Peter Thiel’s Valar Ventures, mentioned the company would like to act as a fintech hub integrating other financial products, including insurance, into its app. We should expect to see more existing fintech start-ups in non-insurance verticals not only talk publicly but also execute strategic moves into insurance.

More cross-border blurring of insurance tech start-ups

Knip, a Swiss-based mobile insurance app backed by U.S. investors including QED and Route66, is currently hiring for U.S. expansion. Meanwhile, U.S. start-ups such as Trov are partnering and launching with insurers abroad. We can expect more start-ups in the U.S. to look abroad both for strategic investment and partnerships, and for insurance tech start-ups with traction internationally to expand to the U.S.

Digital Is Not Enough; Nor Is Paperless

The service of risk management within insurance companies needs to innovate. Today, a small fraction of commercial customers take advantage of risk management services provided by insurance agencies. And insurance companies are fine with this, as they have limited supply — or people — that can provide risk management services.

But what if the same high level of risk management services could be offered to all customers of an insurance company?

How would an insurance company go about offering widespread, and high-quality, risk management services?

The Solution to Better Risk Management Is Your People (Plus Technology)

Insurance agencies currently engaged in risk management services have a distinct advantage: the accumulated knowledge of its people that provide contract reviews for customers.

I had this epiphany as I was reading through a slidedeck titled “Innovation is almost impossible for older companies,” which states:

“People have acquired skills that, at moments, have given significant advantages to companies in order to prosper.”

Insurance agencies now must figure out how to harness the risk management skills of its people in new ways. The alternative is scary for my insurance professional friends, because someone else — someone with new technology and a new supply of risk management knowledge — will figure it out instead. Insurance companies could quickly be out-innovated, as occurred to the taxi industry.

For some time, the taxi industry had skills that allowed it to prosper. Taxi companies used technology and money to set up phone numbers that could be called to request a ride; these companies also stockpiled just enough cars and drivers to meet the minimum level of demand. But then Uber came along and created a better technology that connected riders to a different (and bigger) pool of drivers. The taxi industry got out-innovated.

Insurance agencies are composed of people who have acquired risk management skills. My friends in the industry can review contracts with the best of them. But each of them has a limited capacity to complete contract reviews based on hours in the day. So not all customers get risk management services (either because they don’t know about them or don’t want to pay for them).

A technology will come along that will expand the supply of risk management services. One insurance consultant thinks that technology will be a computer avatar that analyzes and predicts risks independently.

I think the idea of an independently functioning risk management avatar is misguided. I am reminded of a quote from Zero to One, written by the founder of Paypal, Peter Thiel:

“Better technology in law, medicine and education won’t replace professionals; it will allow them to do even more.”

Better Technology Will Allow Insurance Professionals to Do More

I continue to be drawn to the word “collaboration” as I envision the future of insurance technology. Recently, I spent time evaluating software solutions in the insurance industry. All of the solutions I reviewed are focused on step one, what I call “Make it Digital.” Only within the last five to 10 years have insurance carriers and agencies gone paperless, and the insurance software companies are filling this need.

Digital is not enough. Paperless is not enough. Insurance technology must connect people and the knowledge that they create. Don’t think about just connecting to your customers. Think about connecting your team.

Imagine if your entire risk management team could work as a living, breathing entity to assess and evaluate risk. When Agent Jim in Kansas City has a question about liquidated damages in Texas, he should be able to quickly identify work completed by Agent Bob in Dallas dealing with this exact issue. He can then evaluate the work and bring Bob in on any follow-up questions.

I have yet to find an insurance carrier or agency that has figured this out.

This is where the opportunity lies in insurance technology: collaboration.

Should You Quantify IT’s ROI? (Part 1)

What is a quantitative business case for an IT investment? It is a quantifiable measure of benefit, in dollars, that can be realized by making a quantified investment of resources. While resources can be capital, human, intellectual property, etc., in the end it can all be reduced to money. What money is one putting in and what return is one getting out as a result?

Making the quantitative case is a long- practiced ritual in many insurance organizations. I may be committing heresy by asserting that the quantitative case is much overrated, doesn’t serve the purpose it was intended for very well and may, in fact, be an exercise in futility. I’m not making a general statement: I’m speaking about various IT modernization or transformation initiatives in the insurance industry, which I work in and serve.

I took enough corporate accounting and finance courses to qualify as a finance major and as a result am familiar with the mechanics of discounted cash flow analysis, valuation of initiatives, calculations of NPV, IRR, payback, etc., etc. While the theory of the quantitative approach has always seemed compelling, 20 years of practice has taught me the reality and informed my views very differently.

Why, then, is the quantitative case typically so favored? There are two primary reasons. First, quantifying helps with understanding the return on investment for any individual undertaking. Second, and perhaps more important, when many initiatives vie for scarce capital, quantitative cases can allow for comparisons. And in most organizations, one of the most important responsibilities of an executive team is to allocate capital to the most beneficial initiatives.

All this sounds quite straightforward. What, then, is the problem with the quantitative case, especially for initiatives that require big capital expenditures? The problem is not with the mechanics of quantifying. Once the investment and income streams over a reasonably desired time horizon are identified, weighted average cost of capital (WACC), discounted cash flow (DCF), net present value (NPV) and internal rate of return (IRR) sorts of metrics are quite mechanical to calculate. The real problem with so-called insurance modernization or transformation initiatives is with establishing the variables of investment stream, income stream and time.

There are two ways to try to establish these three variables. First, if one can precisely establish the required investments and expected returns over a period. If I know that I have to travel 300 miles and know that I will drive 75 mph, I can mathematically say that I will complete my travel in four hours. Second, if a vast body of empirical evidence exists, then one can at least probabilistically try to establish the three variables with associated confidence levels.

But I would argue that with initiatives in the insurance industry that require large capital-expenditures, neither approach works.

With insurance industry initiatives, quantifying income returns, investments and time period with precision is extremely difficult, if not impossible. On the investments front, projecting increase in premiums and profits, cost savings through headcount reductions and other items and cost avoidance are all an exercise in sheer guesswork. Estimating the costs and timelines of large technology projects also remains elusive. No matter how diligently and hard people work to identify these, the estimates end up being wrong–often, not by some tolerable deviation but rather by orders of magnitude in overruns in costs and time.

Because the vast body of insurance initiatives suffers the same fate, there isn’t reliable empirical evidence to probabilistically establish income, investments and time period with any degree of confidence. And there are other variables that further undermine the attempts at calculations – differential in resources and execution approaches from one initiative to the other, culture of organizations, market changes, technology changes, and much more.

Despite the problems associated with the quantitative business case, most organizations still pursue it. Internal teams work on project portfolios and appropriation of funding exercises. Vendors are always at hand to help the teams develop the business case to sell it to the C-Suite and the board. Within the organization, committees and councils are established to review the “case,” “wisely adjudicate” and pick “winners” and “losers” among candidate initiatives. All these various constituents are well-intentioned and are following the rules of the game. The problem is with the current “rules of the game” and not with those who play.

Are there alternative approaches, then, both to decide whether to fund a given initiative and, once funded, to determine how best to use the funding to ensure that an initiative is yielding benefits? In several instances, I have been fortunate to witness bold leaders abandon the traditional method and take a more pragmatic approach. I’ll discuss this in Part II.

Six Key Insurance Business Impacts From Analytics

Recently, I had the privilege of serving as chairman of the inaugural Insurance for Analytics USA conference in Chicago, which was very well organized by Data Driven Business, part of FC Business Intelligence. I am convinced that analytics is not only one of the most valuable and promising technology disciplines to ever find its way into the insurance industry ecosystem, but that its very adoption clearly identifies those carriers – and their information technology partners – that will be the most innovative.

Analytics has exceptionally broad enterprise potential, with the ability to permanently change the way carriers think and conduct their business. The future of analytics is even more promising than most can imagine.

The conference — where the excitement was palpable — showed the sheer diversity of carrier types and sizes as well as the many different operational areas in which analytics is being used to drive insight, business outcomes and innovation and create real competitive differentiation. From large carriers such as Chubb, Sun Life, Nationwide, American Family, CNA and CSAA, to smaller insurers including Fireman's Fund, Pacific Specialty, Great American, Westfield, National General and Houston Casualty, presentations demonstrated how broadly analytics should be applied through every function and every level of the organization. Presentations from information technology provider types including Dun & Bradstreet, L&T InfoTech, Fractal Analytics, Megaputer, EagleEye Analytics, Clarity Solutions Group, Dataguise, Quadrant, Actionable Analytics, Earley & Associates and DataDNA laid out the future potential.

Recent research shows that one major application of analytics — predictive modeling — is getting attention in pricing and rating, where more than 80% of carriers use it regularly. However, only about 50% use it today in underwriting, and fewer than 30% do so in reserving, claims and marketing.

Based on information shared during the conference, there are six major thrusts to the analytics trend:

• Analytics liberates and democratizes data, which in turn ignites innovation and change within carriers.

• Analytics is uniting insurance organizations, breaking down information silos and creating collaboration between operating units, even as enterprise data governance policies and practices emerge.

• Investment and M&A activity in information technology companies in data and analytics is surging and will create even greater disruption and innovation as more entrepreneurial thinkers continue blending art with science.

• New “as-a-service” pay-per-use models for delivery and pricing are emerging for software (SaaS) and data (DaaS), which will be appealing and cost-effective, especially for mid-tier and smaller carriers.

• Analytics is driving innovation in products, business processes, markets, competition and business models.

• Carriers will have to innovate or surrender market share and should watch for competition from new players, such as Google and Amazon, which understand data, the cloud, innovation and consumer engagement.

This article first appeared on Insurance & Technology

Is M&A in Data and Analytics Setting a Path for Innovation?

The trend of acquisitions of software and data providers is continuing, but with a twist that may lay the foundation for innovation in the insurance industry. 

CoreLogic closed out 2013 with a bang by announcing its acquisition of Eqecat, a catastrophe modeling firm, on Dec. 20, adding to an already impressive list of acquisitions in the past year. CoreLogic added three real estate companies from TPG Capital Decision Insight Information Group–Marshall & Swift/Boeckh, DataQuick Information Systems and DataQuick Lender Solutions (credit and flood-services units)–further extending into the insurance data and analytics space.  

On Jan. 13, 2014, SNL Insurance, which provides a range of statutory data for insurers that links with public data, announced the acquisition of iPartners LLC, a SaaS business intelligence and analytics solution for both the property and casualty and life and annuity insurance industries. SNL says the acquisition will provide its clients a robust BI and reporting tool for operational needs.  

And Verisk Analytics, a supplier of data to insurers and banks, announced on Jan. 14 the acquisition of EagleView Technology, a provider of property images for nearly 90% of all U.S. structures. The images, based on digital aerial image capture, are analyzed to provide information to estimate property size and proximity to risks to assist in underwriting and claims assessments.

While the initial reaction might be to think of these as just another series of acquisitions, these actually point to the great possibility for change in how we access and use data in the insurance industry, a real mash-up of ideas and technology. As an industry, we are intensely dependent on data. But the data we use is fragmented across multiple organizations, accessed and paid for based on 10- to 20-year-old business/pricing models, requires significant integration and is often ineffectively used because of a lack of analytic capabilities. But these acquisitions have the potential to change this landscape.

These acquisitions and others are positioning the industry to be ready to move beyond long-held traditional offerings into “pay-by-use models” for both software (SaaS) and data (DaaS). Each offers the deepening analytics capabilities and expertise that can be used to analyze and create data from all the source data acquired, offering new data points for insurance business processes. Together, these create the opportunity to completely change the business model for data providers. This will enable the provision of new pricing, ease of access and new data based on analysis for many insurers, particularly mid-sized to small insurers, that may not have the expertise, resources or technology to do this by themselves.  

As new models emerge, the implications and the opportunities will be substantial. There could be a new wave of innovation for insurance products, business processes, markets, competition and business models. The playing field could be leveled for access to traditional and new data and information for insurers of all sizes and even for new entrants to the industry.

Who will take the first step forward in creating and offering a new model? How quickly will the innovator bring value and potential to the industry? If the traditional providers don’t, then companies outside our industry who see the strategic importance of data, cloud and new models will. Does Google come to mind?