This post, which describes recent news coming from insurtech and digital insurance in China, was written for Daily Fintech by Zarc Gin from Insurview from within China.
Happy New Year!
It has been a great honor for me to share insurtech developments in China since last November. I hope my posts here help you understand what’s happening in China, so you can either learn from the experiences or even develop businesses opportunities in China.
Today, I’m going to share the predictions we made about insurtech in China in 2018. They are a combination of opinions, ideas, trend analyses and hopes.
1. More funds, more IPOs
We have seen huge amount of funds pouring into digital insurance in China, and top startups are well-funded. Because of the successful IPO of Zhong An, investors are looking for the next big name in digital insurance. Top startups are also aiming for IPOs to catch up with Zhong An. So the fever of digital insurance will enter the next level, with huge funds and IPOs in 2018. My forecast is that Ping An Good Doctor, a Ping An Group subsidiary, will be the first insurtech IPO this year.
2. More digital health insurance
Premium income of health insurance has been growing quickly since 2011, with 404.25 billion RMB ($62.32 billion) income in 2016 and a 68% growth rate. Exalted Life was one of the most popular health policies from Zhong An in 2016. Ping An also launched E-home and E-life, which were well-received. The competition of digital health insurance got more intense in 2017 with the launch of Wesure. So, the competition will continue, and health insurance will be even more widely received in 2018.
Over the past two years, B2C startups were in fashion. But the digitalization of the whole insurance industry is far from accomplished, and the infrastructure of insurance is still in its early stage. Therefore, the potential for B2B startups will be big in 2018.
4. Rise of a new type of broker
CIRC has been trying to weaken bancassurance channels in China. This led insurers to seek the support from broker companies, and the insurance intermediary industry is expanding with this opportunity. Life brokers like Mingya and EverPro are growing quickly. Focusing on quality of individual brokers is their key difference from traditional broker companies. Digital broker companies like Tuniu are also growing rapidly with the help of e-commerce resources. We believe brokerage will have a new age in digital insurance, and both the life and property sectors will grow significantly in 2018.
5. New look on auto insurance
With regulation on auto insurance tightening, the combined ratios for auto insurers are increasing. To reverse the situation, auto insurers need to grab the digital opportunity and develop policies from the perspective of customers. We believe digital auto insurer will explore the possibilities in the digital age and make a difference to the current auto insurance.
6. Opportunity in data and information
Insurers are connected with their customers’ lives, so they will have access to all the data generated, such as health, habits and behaviors. Data can show insurers where the world is going, so there will be a huge opportunity in data collection and analysis.
The world is getting smaller thanks to the internet, both for China and for other countries. The interaction between China and the world is getting more and more frequent. Foreign insurtech companies such as Singapore-based CXA Group are exploring Chinese markets, and Chinese insurers like Fosun and CPIC are implementing their plans around the world.
8. Talent liquidity
Tencent, Alibaba and Baidu all entered digital insurance in 2017. They will heat up the talent liquidity in this industry. We will see an increasing combination between tech talents and insurance talents in the future.
In our previous post, “Five Strategies to Fight Price Comparison,” we argued that, with regard to customer engagement, Google, Apple, Facebook and Amazon, the companies that are so much feared by insurers, have in common that they literally carry pull in their genes. Obviously, there is so much insurance carriers can learn from them. We therefore decided to analyze the pull platforms of these companies, but also of the first financial institutions, fintechs and insurtechs that have established successful pull initiatives, and last but not least outside the industry best practices from among others Nike, Danone and Unilever – in total some 30 pull platforms.
Our analysis revealed that these 30 pull initiatives all have their own mix of eight key characteristics: (1) they solve real problems, (2) leveraging content, tools and connections, (3) building communities, (4) thinking beyond customers, (5) looking beyond data, (6) fostering beyond their traditional vertical, (7) using network effects (8) and creating unconventional value.
Let’s take a closer look at each of these eight key characteristics, each illustrated by a best practice. We deliberately used examples from outside the insurance industry, to spark your imagination.
1. Solve Real Problems
Successful pull platforms solve real problems in an unconventional way. Not just frictions, but the real problem; the problem behind the financial need. Using technology, they enable their customers to be more in control, to learn and be better informed, to make better and faster decisions and to get better service, geared to their need.
Each time I go running, I activate the Nike+ running app. It registers distance, speed and routes, I can track my progress over time, connect with friends to keep each other going or compete and when I’m traveling. It helps me to find popular routes in cities abroad.
Nike+ is changing the conversation with its customers on all levels: business model, brand, proposition and customer experience. Nike’s proposition now is no longer about shoes that may or may not have shock-absorbing soles. It’s also about a range of new services that key in on real underlying needs: making athletes enjoy their sport even more. While, obviously, Nike could easily use all the information to determine exactly when you need a new pair of running shoes, Nike is becoming a company that isn’t just focused on products and sales, but also on creating services and building relationships.
“Solving the real problem” is less trivial than it may sound. Let’s take Alipay, the successful payment system of Alibaba, used by millions of shop owners and other merchants throughout China (and beyond). Sabrina Peng, president, Alipay International, shared with us: “Alipay isn’t just about payments; it’s about customer relationships. The whole idea is to bring more value to the merchants and to the users. Payment is nothing more than just a part of the purchase cycle. Merchants don’t want a new payment system. They want more customers.” This insight is Alipay’s starting point to assist retailers in connecting with Alipay users in all sorts of ways. Merchants can use Alipay to market their services, including special offers, coupons or vouchers. Alipay users can see all the merchants nearby, see pictures, use unique discount codes and post reviews – resulting in more traffic, customers and revenue for merchants. The payment system plays a key role in the model but resides in the background.
Alipay shows that it is essential to really understand the context to provide real added value and to play an active role in the ecosystem of that context. People are not interested in a mortgage, but in a house. The context of a nice house and easy living offers more opportunities to add value to customers than just the mortgage, or the home insurance, and more opportunities for new revenue streams.
2. Leverage content, tools and connections
Pull platforms have a large added value when there is an imperfect, fragmented market, with lots of suppliers, many products that are difficult to compare, products that are distributed sub-optimally, a lot of detailed information on various locations, many who are interested in that information or products and asymmetry in information. That also explains the popularity of comparison sites for financial services and the large role given to search engines by consumers in the path to purchase. Successful pull initiatives put a specific set of content, tools and connections at the user’s disposal.
Danone developed a pull platform that supports mothers in all kinds of ways, from “becoming pregnant” to their child’s first five years, the “early nutrition” stage. Tom de Waard, global digital experience director at Danone Nutricia Early Life Nutrition: “The BLX platform supports mothers in all kinds of ways, from ‘becoming pregnant’ to their child’s first 1,000 days, the ‘early life nutrition’ stage that lays the foundation for future health. It includes being present in online places, owned, earned and paid, where mothers gather information and discuss matters with each other, a branded mobile app helping mothers 24/7 with relevant information and services. All these various data sources are used to provide tailor-made services to every parent with the right content, services and tools, and personal advice and offerings – precisely in sync with, for example, the exact age and health situation of the child. Months in advance of the birth, we are in frequent contact with the parents. That provides all kinds of possibilities to establish a connection. The result is that, from the birth on, our products are a natural given. The results of the platform are exceeding expectations by far on ‘brand of first choice’, NPS and the rate of interaction with the brand.”
3. Build Communities
A vast number of pull initiatives we looked at fulfill a community function or make use of it. Many offer consumers the opportunity to play an active role or to share all kinds of content. This way, they lend the authority of credible consumers. Think of the community that Danone is building. Connecting peers ensures that all involved gain value from the interactions. More users result in more interactions, which in turn results in more value. Creating such an upward spiral is the real challenge.
The vast majority of private bankers and investment advisers we know are performing worse than the market. That is a serious imperfection. At social investment network eToro, private investors can compare their portfolio with that of others. It is sort of the Facebook of private investors. You can see who has performed well for years in a row. eToro lets you invest along with the most successful investors. Your portfolio proportionally copies the trades of the Popular Investor of your choosing. When he buys, you buy. When he sells, you sell.
Yoni Assia, CEO of eToro, says, “64% of all trades via eToro are copy trades. Being followed and copied can be a lucrative business for our most popular traders. Our ‘Popular Investor Program’ allows traders to earn up to 2% of the assets they are passively managing.” eToro is one of the best examples we know of new conversations in financial services. Transparent information exchange is at the core of the business model. Trust in peers is leveraged and creates huge value for eToro members and eToro alike. eToro has more than 5 million registered users.
4. Think Beyond Customers
Users of Danone’s BLX platform don’t have to be a customer to have access to all the tools and services. That means it also attracts interested potential consumers who otherwise wouldn’t even show up on the radar. Financial institutions primarily think about services they can offer when someone already has been taken on as a customer. Most of the time, the number of non-customers is significantly larger. Why wouldn’t you develop services for this much larger target group? Other financial institutions foster this route, too.
Rabobank’s Hypotheekdossier, “mortgage file,” allows consumers, whether they are a customer or not, to do the math when they are looking for a new house or refinancing their mortgage. Because the information and tools are better than elsewhere, the platform has a large appeal and is an excellent lead generator.
Another example is Personal Capital, an American wealth manager that provides all kinds of tools to non-customers, letting them experience some of Personal Capital’s expertise. In essence, these companies are using pull platforms to move upstream. They are building the brand in an active manner, among the target audience, branding by doing. On top of that, they get direct access to tomorrow’s customers, while being much less dependent on search engines and comparison sites.
5. Look Beyond Data
In all the pull platforms we have discussed so far, the use of data plays a pivotal role. Pull initiatives offer the possibility to gather much deeper consumer insights about what is going on in the consumer’s life around a particular life event or product. It is an important side effect of pull initiatives. They provide customer insights that can be translated into better products, or even real-time services.
Unilever’s All Things Hair
Unilever is the third-largest player in the global hair care market, but struggles to achieve growth. Consumers are tired of hair category clichés in advertising and go online in search of answers and inspiration. According to Google, there are around one billion (!) searches related to hair each month – from how to take care of split ends, to how to style your hair for a wedding. Half of all online beauty shoppers watch a related video on YouTube while looking for products to buy. But only 3% go to videos by beauty brands; vloggers control the other 97%. Facing these challenges, Unilever decided to launch All Things Hair, a YouTube channel where consumers can browse the latest trends, tips and treatments. What makes All Things Hair special is that it leverages partnerships with Google and a team of leading vloggers, many of whom have several million followers in their own right. Google’s data-mining capabilities allow Unilever to gain real-time insight in what people are looking for with regard to hair, such as insights in growing search terms and trending topics such as celeb’s hair or holiday seasons. It even helps Unilever to predict hair trends as much as three months in advance. These insights are used to brief a team of beauty vloggers, who are paid by Unilever to create bespoke tutorials. This content features relevant products from Unilever brands, such as Toni & Guy, Dove and VO5. All Things Hair became the No. 1 one hair care channel in just 10 weeks, with 50 million views in the first year – wedged between Rihanna and Nicki Minaj in YouTube’s engagement ranking.
6. Foster beyond the traditional vertical
Successful pull platforms dare to take on other roles. Danone is shifting from purely product to offering a broad array of services, as well. Alipay is choosing to have a different role in the value chain than the traditional role of a payment solutions provider; the company actively supports retailers to increase their revenues. If you want to solve the actual problems that customers face, then often there is more required than delivering a financial product. Successful pull initiatives dare to take on other roles. That not only fulfills the needs of customers better but also helps to open up new revenue streams.
The Get platform of Danish telco TDC comprises 12 services, from online newspapers and magazines, to pay-TV and Bet25.dk, online betting (35% of all Danes watch soccer via TDC). This way, TDC is developing its business model from subscriptions to a content play.
China’s leading personal financial service provider Ping An adopted the strategy of the synergistic development of traditional and non-traditional businesses by creating all sorts of portals in non-traditional domains such as home, health NS car, but also food and entertainment. All these platforms have large numbers of users and interactions, and advanced data mining and precision marketing capabilities. Each and every one of them are new business lines that create new value for themselves, as well as for Ping An. Only when relevant and timely are Ping An’s traditional banking and insurance activities brought into contact with customers. The new business lines are not only increasing their own value; by moving upstream, they are increasing relevancy and enlarging the total customer base, and by allowing new synergies they also increase the value of the entire ecosystem of Ping An enterprises.
DIA Amsterdam 2018 will take place on May 16th and 17th in the awesome Westergasfabriek venue, close to the vibrant city center.
7. Use network effects
Google finances online advertising purchases by merchants. Obviously, Google has a fair idea of the track record of the merchant, in terms of marketplace success – traffic, sales figures, customer reviews and satisfaction scores – as well as financial reliability and debtor risk. Amazon follows the same strategy as Google, providing loans to independent sellers on the Amazon platform. Everybody is expecting Apple to eventually use the vast pool of iTunes users, including their credit card data, for financial services.
Both Google and Amazon can kick start such activities based on the millions of merchants they are already in contact with. That is their strength: they are capable of generating so-called network effects. Along the way, they have accumulated all kinds of assets; so-called stored value. Traffic figures, customer reviews and satisfaction scores are examples of such stored value. These accumulated assets are deployed later to develop new revenue streams with, if necessary, other business models. With every new service, the companies strengthen their position. Network effects can also be created by freeriding on the activity of established allied platforms. PayPal, for instance, grew on top of eBay.
There is currently much debate and speculation about how Amazon will enter the insurance market. Many fear that the company will launch a full-stack insurer, more or less similar to the ones we know. Looking at how Amazon leverages stored value to offer loans to merchants, it may in fact follow a totally different strategy. It may be interesting to look at all the stored value the company has and then think of what totally new insurance concepts would leverage this stored value to the max.
8. Create unconventional value
When financial institutions use pull initiatives to take on a different role in the value chain, we see that they not only strengthen their current business – for example by brand building or lead generation – but they also explore new revenue streams and business models. Ping An and TDC Get are explicitly doing so with various platforms.
PostFinance (Switzerland) is partnering with Strands to provide transaction-driven marketing. The integration with Card-Linked Offers (CLO) enables the bank’s systems to analyze customer transactions, make contextual offers, recommend marketing strategies to merchants and continuously learn from customers’ responses. For example, businesses can reward loyal customers, gain competitors’ share of clients or re-activate customers that haven’t made a purchase for a while. Eligible customers receive the coupon on their mobile from the bank with a discount, which they accept or reject. The discount is redeemed automatically in the customer’s account; he just has to make the payment with the bank’s card. PostFinance charges a percentage of the revenue generated by the coupons, for instance 5%. So if a customer spends 3,000 CHF a year using the coupons, the bank gets 150 CHF in revenue from this customer. PostFinance has full control of the CLO platform, including multiple pricing options and monitoring capabilities.
Pull platforms are digital flagships
After mobile, social, and connected devices, pull platforms are offering a new interface with customers. Eduard de Wilde (director digital VODW) calls them examples of digital flagships, no less — comparable to the flagship stores of renowned retail chains at the best locations in the most important cities to show their brand and what it offers in full depth. The best practices that we included show that pull platforms can take so many different shapes. Some seem to be detached from the systems; others seem fully integrated. Some of them are using a specific medium; others use different media simultaneously, seamlessly matched to each other. But they also have a single point of departure in common. Real problem solving requires that financial institutions need to speak to their customers at the moments when customers need them most. Consequently, pull platforms need to be designed around the customer journey and building the two-way relationship, to enhance top-of-mind position, brand loyalty and advocacy.
The focus on problem solving also means it is about selling without selling. Self-serving content is out. The shift from push to pull is not just about shifting budget to pull platforms. How you reach customers is not the only thing that is important. It is what you do for them that counts even more. Consequently, brands need to adjust, from “how can we make sure people will buy more from us” to “how can we do more for them?” That is the way brands are built, and the way to become less dependent on search engines and comparison sites and escape the commodity trap.
If you would like to read more about pull platforms, check our book “Reinventing Customer Engagement. The next level of digital transformation for banks and insurers,” in English or in German
Obviously, we will ample attention to platforms at DIA Amsterdam, May 16 and 17.
As we reach the end of 2017, the first full 12 months where insurtech has been recognized as a standalone investment segment, we wanted to reflect on what has been an incredible year.
From the start, we at Eos believed that insurtech would be driven globally, and that has certainly played out. This year, we’ve visited: Hong Kong, Amsterdam, New York, Las Vegas, Nigeria, Dubai, India, Singapore, Bermuda, Milan, St. Louis, Munich, Vienna, Paris, Zurich, Cologne, Chicago, San Francisco, Silicon Valley, Seattle and Toronto. We’ve expanded our geographic footprint to include the East and West coasts of the U.S. and India and have seen fantastic progress across our expanding portfolio. We’ve welcomed a number of new strategic partners, including Clickfox, ConVista and Dillon Kane Group, and launched our innovation center, EoSphere, with a focus on developing markets
At the start of the year, we published a series of articles looking at the key trends that we believed would influence insurtech and have incorporated these in our review of the year.
We hope you enjoy it! Comments, challenges and other perspectives, as always, would be greatly received.
2017: The year innovation became integral to the insurance sector
How are incumbents responding?
We are seeing a mixed response, but the direction of travel is hugely positive. A small number of top-tier players are embracing the opportunity and investing hundreds of millions, and many smaller incumbents with more modest budgets are opening up to innovation and driving an active agenda. The number sitting on the side lines, with a “wait and see” strategy is diminishing.
“If 2016 was the year when ‘some’ insurers started innovating, 2017 will be remembered as the year when ‘all’ insurers jumped on the bandwagon. And not a minute too soon! When I joined 3,800 insurance innovators in Las Vegas, we all realized that the industry is now moving forward at light speed, and the few remaining insurers who stay in the offline world risk falling behind.” Erik Abrahamson, CEO of Digital Fineprint
We are more convinced than ever that the insurance industry is at the start of an unprecedented period of change driven by technology that will result in a $1 trillion shift in value between those that embrace innovation and those that don’t.
Has anyone cracked the code yet? We don’t think so, but there are a small number of very impressive programs that will deliver huge benefits over the next two to three years to their organizations.
“We were pleased to see some of the hype surrounding insurtech die down in 2017. We’re now seeing a more considered reaction from (re)insurers. For example, there is less talk about the ‘Uber moment’ and more analysis of how technology can support execution of the corporate strategy. We have long argued that this is the right approach.” Chris Sandilands, partner at Oxbow Partners
Have insurers worked out how to work with startups? We think more work may be needed in this area….
“Investors are scrambling for a piece of China’s largest online-only insurer… the hype could be explained by the ‘stars’ behind ZhongAn and its offering. Its major shareholders — Ping An Insurance (Group) Co., Alibaba Group Holding Ltd., Tencent Holdings Ltd.” – ChinaGoAbroad.com
“Tencent Establishes Insurance Platform WeSure Through WeChat and QQ” – YiCai Global
“Amazon is coming for the insurance industry — should we be worried?” – Insurance Business Magazine
“Aviva turns digital in Hong Kong with Tencent deal” – Financial Times
“Quarter of customers willing to trust Facebook for insurance” – Insurance Business Magazine
“Chinese Tech Giant Baidu Is Launching a $1 Billion Fund with China Life” – Fortune
We are already well past the point of wondering whether tech giants like Google, Amazon, Facebook, Apple (GAFA) and Baidu, Alibaba, Tencent (BAT) are going to enter insurance. They are already here.
Notice the amount of activity being driven by the Chinese tech giants. Baidu, Alibaba and Tencent are transforming the market, and don’t expect them to stop at China.
The tech giants bring money, customer relationships, huge amounts of data and ability to interact with people at moments of truth and have distribution power that incumbents can only dream about. Is insurance a distraction to their core businesses? Perhaps — but they realize the potential in the assets that they have built. Regulatory complexity may drive a partnership approach, but we expect to see increasing levels of involvement from these players.
Role of developing markets
It’s been exciting to play an active role in the development of insurtech in developing markets. These markets are going to play a pivotal role in driving innovation in insurance and in many instances, will move ahead of more mature markets as a less constraining legacy environment allows companies to leapfrog to the most innovation solutions.
Importantly, new technologies will encourage financial inclusion and reduce under-insurance by lowering the cost of insurance, allowing more affordable coverage, extending distribution to reach those most at need (particularly through mobiles, where penetration rates are high) and launching tailored product solutions.
Interesting examples include unemployment insurance in Nigeria, policies for migrant workers in the Middle East, micro credit and health insurance in Kenya, a blockchain platform for markets in Asia and a mobile health platform in India.
Protection to prevention
At the heart of much of the technology-driven change and potential is the shift of insurance from a purely protection-based product to one that can help predict, mitigate or prevent negative events. This is possible with the ever-increasing amount of internal and external data being created and captured, but, more crucially, sophisticated artificial intelligence and machine learning tools that drive actionable insights from the data. In fact, insurers already own a vast amount of historical unstructured data, and we are seeing more companies unlocking value from this data through collaboration and partnerships with technology companies. Insurers are now starting to see data as a valuable asset.
The ability to understand specific risk characteristics in real time and monitor how they change over time rather than rely on historic and proxy information is now a reality in many areas, and this allows a proactive rather than reactive approach.
During 2017, we’ve been involved in this area in two very different product lines, life and health and marine insurance.
The convergence of life and health insurance and application of artificial intelligence combined with health tech and genomics is creating an opportunity to transform the life and health insurance market. We hope to see survival rates improving, tailored insurance solutions, an inclusion-based approach and reduced costs for insurers.
Marine insurance is also experiencing a shift due to technology
In the marine space, the ability to use available information from a multitude of sources to enhance underwriting, risk selection and pricing and drive active claims management practices is reshaping one of the oldest insurance lines. Concirrus, a U.K.-based startup, launched a marine analytics solution platform to spearhead this opportunity.
The emergence of the full stack digital insurer
Perhaps reflecting the challenges of working with incumbents, several companies have decided to launch a full-stack digital insurer.
We believe that this model can be successful if executed in the right way but remain convinced that a partnership-driven approach will generate the most impact in the sector in the short to medium term.
“A surprise for us has been the emergence of full-stack digital insurers. When Lemonade launched in 2016, the big story was that it had its own balance sheet. In 2017, we’ve seen a number of other digital insurers launch — Coya, One, Element, Ottonova in Germany, Alan in France, for example. Given the structure of U.K. distribution, we’re both surprised and not surprised that no full-stack digital insurers have launched in the U.K. (Gryphon appears to have branded itself a startup insurer, but we’ve not had confirmation of its business model).”– Chris Sandilands, partner, Oxbow Partners
Long term, what will a “full stack” insurer look like? We are already seeing players within the value chain striving to stay relevant, and startups challenging existing business models. Will the influence of tech giants and corporates in adjacent sectors change the insurance sector as we know it today?
Role of MGAs and intermediaries
Insurtech is threatening the role of the traditional broker in the value chain. Customers are able to connect directly, and the technology supports the gathering, analysis and exchange of high-quality information. Standard covers are increasingly data-driven, and the large reinsurers are taking advantage by going direct.
We expected to see disintermediation for simple covers, and this has started to happen. In addition, blockchain initiatives have been announced by companies like Maersk, Prudential and Allianz that will enable direct interaction between customers and insurers.
However, insurtech is not just bad news for brokers. In fact, we believe significant opportunities are being created by the emergence of technology and the associated volatility in the market place.
New risks, new products and new markets are being created, and the brokers are ideally placed to capitalize given their skills and capabilities. Furthermore, the rising rate environment represents an opportunity for leading brokers to demonstrate the value they can bring for more complex risks.
MGAs have always been a key part of the value chain, and we are now seeing the emergence of digital MGAs.
Digital MGAs are carving out new customer segments, channels and products. Traditional MGAs are digitizing their business models, while several new startups are testing new grounds. Four elements are coming together to create a perfect storm:
Continuing excess underwriting capacity, especially in the P&C markets, is galvanizing reinsurers to test direct models. Direct distribution of personal lines covers in motor and household is already pervasive in many markets. A recent example is Sywfft direct Home MGA with partnerships with six brokers. Direct MGA models for commercial lines risks in aviation, marine, construction and energy are also being tested and taking root.
Insurers and reinsurers are using balance sheet capital to provide back-stop to MGA startups. Startups like Laka are creating new models using excess of loss structures for personal lines products.
Digital platforms are permitting MGAs to go direct to customers.
New sources of data and machine learning are permitting MGAs to test new underwriting and claims capabilities and take on more balance sheet risk. Underwriting, and not distribution, is emerging as the core competency of MGAs.
Three of the trends driving innovation that we highlighted at the start of the year centered on the customer and how technology will allow insurers to connect with customers at the “moment of truth”:
Insurance will be bought, sold, underwritten and serviced in fundamentally different ways.
External data and contextual information will become increasingly important.
Just-in-time, need- and exposure-based protection through mobile will be available.
Over time, we expect the traditional approach to be replaced with a customer-centric view that will drive convergence of traditional product lines and a breakdown of silo organization structures. We’ve been working with Clickfox on bringing journey sciences to insurance, and significant benefits are being realized by those insurers supporting this fundamental change in approach.
Interesting ideas that were launched or gained traction this year include Kasko, which provides insurance at point of sale; Cytora, which enables analysis of internal and external data both structured and unstructured to support underwriting; and Neosurance, providing insurance coverage through push notifications at time of need.
As discussed above, we believe partnerships and alliances will be key to driving success. Relying purely on internal capabilities will not be enough.
“The fascinating element for me to witness is the genuine surprise by insurance companies that tech firms are interested in ‘their’ market. The positive element for me is the evolving discovery of pockets of value that can be addressed and the initial engagement that is received from insurers. It’s still also a surprise that insurers measure progress in years, not quarters, months or weeks.” – Andrew Yeoman, CEO of Concirrus
We highlighted three key drivers at the start of the year:
Ability to dynamically innovate will become the most important competitive advantage.
Optionality and degrees of freedom will be key.
Economies of skill and digital capabilities will matter more than economies of scale.
The move toward partnership built on the use of open platforms and APIs seen in fintech is now prevalent in insurance.
“We are getting, through our partnerships, access to the latest technology, a deeper understanding of the end customers and a closer engagement with them, and this enables us to continue to be able to better design insurance products to meet the evolving needs and expectations of the public.” Munich Re Digital Partners
Key trends to look out for in 2018
Established tech players in the insurance space becoming more active in acquiring or partnering with emerging solutions to augment their business models
Tech giants accelerating pace of innovation, with Chinese taking a particularly active role in AI applications
Acceleration of the trend from analogue to digital and digital to AI
Shift in focus to results rather than hype and to later-stage business models that can drive real impact
Valuation corrections with down rounds, consolidation and failures becoming more common as the sector matures
Continued growth of the digital MGA
Emergence of developing-market champions
Increasing focus on how innovation can be driven across all parts of the value chain and across product lines, including commercial lines
Insurers continuing to adapt their business models to improve their ability to partner effectively with startups — winners will start to emerge
“As we enter 2018, I think that we’ll see a compression of the value chain as the capital markets move ever closer to the risk itself and business models that syndicate the risk with the customer — active risk management is the new buzzword.” – Andrew Yeoman, CEO Concirrus
We’re excited to be at the heart of what will be an unprecedented period of change for the insurance industry.
A quick thank you to our partners and all those who have helped and supported us during 2017. We look forward to working and collaborating with you in 2018.
Artificial intelligence is booming in insurance. In a recent report, Celent identified AI use cases around the globe and across the insurance value chain.
Uses include customer engagement (USAA’s Nina); product optimization (Celina Insurance Group, Protektr); marketing and sales (Usecover, Insurify, Optimal Global Health, Ping An); underwriting (ZestFinance, SynerScope, Intellect SEEC, Swiss Re); claims (Tractable, Ant Financial, Gaffey Healthcare); fraud detection (Ant Financial, USAA); risk management (Achemea); and business operations (Ping An Direct, Union Life).
Insurers are wise to innovate with AI technologies. Early adopters will face challenges but will also have the potential to reap greater rewards by improving efficiency and customer engagement.
Here are five challenges for carriers to consider when innovating with AI:
1. What technology to use when. When embarking on a digital transformation, there may be a number of solutions available for a given problem, one of which could be AI. But while AI may resolve an issue, it is important to examine all the potential solutions and decide which one is the best fit. Perhaps robotic process automation (RPA), application programming interface (API) or another automated solution is best suited. Can an existing technology be leveraged?
Deciding what solution to apply when requires you to look at the whole organization and all the issues upfront. This allows CIOs and CEOs to examine each problem, decide on the right technology solution and make sure it complements the overall strategy and budget.
2. Big data + AI = big strategy. A second challenge surrounds the management of big data obtained from customers, core systems, brokers/agents and insurance exchanges. Add to that the varied types of data that AI is managing, analyzing, communicating and learning from and things get a little more complicated. Here’s a list of the different data types AI may be working with:
Structured, semi-structured and unstructured data
Data is also classified as real-time, historical or third-party — yet another dimension to consider. Make sure your strategy takes the necessary data variables into account: where data will come from, where it will flow to and how it will be handled at various points in the customer journey.
3. Managing customers across swim lanes. This leads us to challenge No. 3: the ability of AI to engage with customer data at key touchpoints during the customer lifecycle. For example, if Lucy has group benefits as well as voluntary products, car and house insurance, how will her data be managed and optimized across swim lanes?
What will be the touch points for AI? When will other insurtech solutions be present? When is human intervention required? And how will this data be used to inform future risk decisions?
4. Harnessing AI’s multidisciplinary capabilities. AI encompasses machine learning, deep learning, natural-language processing, robotics and cognitive computing, to name a few. You can read my blog post here to learn more. Deciding what technical abilities will be required to solve your problem could present challenges as the lines between disciplines blur.
Additionally, the next wave of AI could come from entirely different industries, such as aerospace, environmental science or health — but it will still have applications for insurance. The best way to overcome this is to examine your AI needs across solutions and select vendors with the right capabilities to execute them.
5. Communicating past tech speak. As AI becomes mainstream, the challenge of helping non-technical business professionals understand these complex applications is real. AI systems can require a level of technical expertise beyond the everyday scope of business.
True digital transformation, regardless of technical complexity, affects everyone in the organization. Ensuring the vision is shared will matter as day to-day operations, tasks and activities change. Find someone who can break down the benefits of these new solutions into bite-sized pieces that everyone understands to ensure buy-in and ultimate success.
The question of whether AI will indeed disrupt the industry or simply enable its full digitization is still not known. It will not be the solution to every problem. However, if implemented strategically, it may hold the capacity to create an entirely new way of insuring — and delighting — customers in a rapidly changing landscape.
The insurance sector, which is considered to be fairly traditional and resistant to change, is currently being overtaken by a macro trend of digital transformation. This is causing institutions with hundreds of years of tradition to rethink their insurance business models, by identifying modules within their own value chain that need to be transformed or reinvented with the help of technology and data usage. InsurTech represents a macro trend destined to take on an ever-growing relevance in a world that tends toward hyperconnectivity and the infiltration of technology into all aspects of society. The insurance business will become more InsurTech-oriented, and technology will have a decisive role in reaching strategic goals. This applies to insurance companies, reinsurers, intermediaries and newcomers. During 2015, InsurTech start-ups received around $2.5 billion in funding, according to LTP.
The number of innovative initiatives is growing exponentially, raising interest for all phases of the customer journey and all steps in the insurance value chain. This reveals a very crowded map of innovations that were introduced by the incumbents of the insurance sector or by start-ups. The innovations can be divided into seven macro areas: awareness, choice, acquisition, use, recommendation, Internet of Things (IoT) and peer-to-peer (P2P). One of the main challenges for analysts, incumbents, start-ups and investors is identifying the degree of relevance that these innovations represent for the insurance sector.
After many discussions with venture capitalists and insurance thought leaders, I’ve come up with my own answer for the following question: What is the potential of each InsurTech initiative? My approach is based on four axes related to the fundamentals of the insurance business:
Profitability: Impact that an innovation may have on the level of profitability of the insurance portfolio, acting on the loss-ratio level or on the cost level without an increase in volume.
Proximity: Contribution for creating improved relationship that is based on numerous touchpoints during the customer journey. Bain’s international research reveals that the customer satisfaction (measured with the Net Promoter Score approach) of those clients that have interacted directly with the insurance company is markedly superior to those who have not. Obviously, there is a predictable relationship between satisfied clients and their economic effects.
Persistence: The reach of the new initiative in terms of renewal rate increase, and thus of stabilization of the insurance portfolio.
Productivity: Evaluation of the contribution that a certain InsurTech approach can have at the top-line insurance level in terms of client acquisition, cross-selling or additional fee collection for services.
These considerations refer to a specific innovation initiative and are not absolute. On the contrary, they should be customized to each specific market, line of business and client segment. In a similar manner, an insurance company has to make these considerations by taking into account both the contribution brought toward the achievement of strategic priorities and the coherence with its distribution approach.
I am convinced that evaluating InsurTech opportunities based on this pragmatic approach clarifies the rationale behind each innovation initiative. It facilitates the prioritization of initiatives and ultimately helps focus investors’ and innovators’ efforts.
If we consider some connected-insurance use cases, it is easy to understand the reason why the World Economic Forum identified connected insurance as one of the main insurance innovation trends:
Profitability: From this perspective, the experience of the Italian insurance market in motor telematics (which is the most advanced market at an international level, with a 16% penetration for private use vehicles) shows how this approach is able to generate actual value for the insurance bottom line by acting on risk selection and the claims management process.
Proximity: Nowadays, within the connected car line of business, there are dozens of different services based on data collected from black boxes—services that the insurance company offers to the final client. By focusing instead on health insurance, the Chinese insurer Ping An has built an initiative based on connected health that recently raised a round A financing of $500 million, with an valuation of $3 billion.
Persistence: The experience of Discovery Holding in the field of protection has shown relevance when it comes to reducing the lapse rate by using the Vitality approach—which works by identifying and rewarding healthy behaviors.
Productivity: The data recorded by sensors represents a great opportunity for getting to know customers and to send personalized offers at the best moment possible. This potential, which is yet to be explored, is precisely the driver that helped create the start-up Neosurance, recently awarded the IoT Newcomer award at the Insurance IoT Europe Summit.
These insurance approaches suggest the use of sensors for data collection for different business lines. This data refers to the status of an insured risk, and to the telematics for remote transmission and informatics management, alongside the insurance value chain of the collected data. These approaches represent a great opportunity for connecting the insurance sector with its own clients and their risks.
Italy is today one of the most advanced ecosystems of connected insurance, encompassing 4,9 million auto insurance contracts, which include a box provided by the company, and almost 50,000 home insurance contracts, which are characterized by the use of sensors communicating with the company. In this context, the Connected Insurance Observatory was born: a think tank dedicated to spreading the culture of insurance innovation. I put together the Observatory at the beginning of 2016 with the support of the Italian National Association of Insurance Companies (ANIA). The Observatory has made it possible to unite 30 primary Italian and international insurance groups and some 15 other interested players to bring a contribution to the InsurTech story in the making.