Tag Archives: risk genius

Insurtech Now Hits Corporate, Specialty

When insurtech sprang to prominence in 2015, most startups focused on personal lines disruption. Our August 2016 infographic showed that 75% of insurtechs were targeting personal lines and that 56% were focusing on distribution. Most corporate and specialty insurers concluded that insurtech presented no threat and only limited opportunity and continued with business as usual.

That was then, and now is now. Insurtech now matters for corporate and specialty insurers.

(Incidentally, we agree with the point Adrian Jones, head of strategy and development at SCOR, makes in this excellent article: it’s a myth that insurtech has been around only since 2015. We do, however, believe that there has been a new thrust since then, harnessing the pace and power of new technologies.)

2015-2017: The first wave of insurtech

It is not surprising that insurtech started as a personal lines disruption play. Entrepreneurs, buoyed by what was happening in fintech and other industries, saw huge opportunities to make insurance more customer-centric based on their own experiences. Entrepreneurs wanted to simplify insurance (e.g. Sherpa), offer more tailored propositions (e.g. Bought By Many) or change the whole insurance paradigm (e.g. Guevara).

But the truth is that insurance has not been disrupted over the last three years, and it’s hard to see that this is about to change. As Adrian illustrates in another article, even the most prominent disruptors in the U.S. (Lemonade, Metromile and Root) are finding the going tough and burning through a lot of capital, whether directly or via  reinsurance.

See also: Digital Playbooks for Insurers (Part 1)  

We argue in our insurtech Impact 25 paper (February 2018, page 7) that many distribution insurtechs are not scratching sufficiently major customer itches to be worth the switching cost for those consumers. As a result, the perceived potential is worrying incumbents far more than their actual performance to date.

2018: The second wave of insurtech

If we were to update our insurtech landscape infographic, supplier insurtechs would feature much more prominently. These companies are developing technology (or, as in the case of German insurtech Kasko, have repurposed consumer propositions) to help incumbent insurers, reinsurers and brokers operate more effectively. Supplier insurtechs have found getting traction in consumer markets tough and are developing technologies or techniques that they can sell to the established insurers.

Many of these companies are targeting corporate and speciality underwriters. This is perhaps not surprising – at least not from the U.K. perspective. U.K. personal lines insurers have been investing in pricing capabilities, efficiency and fraud analytics for years as competition has become cutthroat. They are mostly advanced in many areas.

This is in strong contrast to corporate and specialty classes, where much underwriting is still judgment-based, processes are manual and underwriters and risk managers are resigned to poor data quality. As such, we believe that many of the Impact 25 Members can be valuable for corporate and specialty underwriters in 2018. Some examples are below:

  • Insurdata was set up by ex-RMS executive Jason Futers and helps (re)insurers obtain more accurate building location information. This is helpful for underwriting (e.g. commercial property, reinsurance portfolios), risk management and portfolio reviews.(websiteImpact 25 two-pager)
  • Risk Genius uses AI to read policies and understand coverage. Founder Chris Cheatham noted recently. “[My trip to] London was amazing. It took two days for one very big learning to sink in: Underwriters in Europe are empowered to manuscript with little or no formal approval process.” His business allows corporate insurers to get a better understanding of their exposures.(websitetwo-pager)
  • Flock is an analytics platform currently used to price drone flights dynamically, for example taking into account hyper-local weather conditions and locale of flight. The technology’s ability to process big data quickly could be helpful for commercial IoT propositions, for example. (websitetwo-pager)
  • Cape Analytics and Geospatial Insight generate underwriting or claims insight from aerial imagery. This is useful, for example, in natcat losses when (re)insurers need to assess their exposures quickly. (Cape Analytics: website2-pager; Geospatial Insight: websitetwo-pager)

See also: Have Insurers Lost Track of Purpose?  

What it means for corporate and specialty insurers

Technology is not, of course, a new phenomenon in corporate and speciality insurance. However, the speed of proliferation of new vendors (of both technology solutions and data sources) is arguably unprecedented. It challenges the corporate clock speed of most incumbents and will present opportunities to successful adopters to tilt industry profits in their direction.

But identifying the correct response is challenging for incumbents and, as we argue in our Impact 25 paper, there is no single, correct course of action. Choices that need to be made broadly fit into three categories:

  • Strategy: Should we focus on customer experience/proposition or efficiency?
  • Technology: Do we build or partner or buy? If we partner, how do we create and protect differentiating IP?
  • Execution: Should we innovate within the business or in dedicated teams? What structures and processes do we need?

These questions – among others – need to be answered to ensure an effective corporate response.

Talking Insurtech With Regulators

Key Points 

  • Recent shifts in insurance regulation are driven by consumer demand.
  • Traps for the unwary mean that insurtech startups should engage with regulators early and often.
  • Brokers need to know how to navigate the complex framework of anti-rebate and anti-inducement laws.

It is no secret: Investors are pouring money into insurtech startups with the goal of transforming the insurance industry. This increased investment is fueling not only growth in the industry, but also growth in the number of conferences, expos and seminars that allow companies to promote their products, build connections and stay abreast of the latest trends. Last month, more than 3,500 startups, insurers, investors, and service providers converged on Las Vegas for the largest and most global of such conferences: InsureTech Connect.

Attendees at this year’s event were treated to a host of presentations, from insightful fireside chats with entrepreneurs, such as Metromile’s Dan Preston and Ring’s Jamie Siminoff, to thought-provoking panels on satellite imagery, telematics, wearables and innovative strategies for insurance companies of the future.

See also: InsureTech Connect 2017: What’s New  

But, as excitement and buzz steadily mount, at least one panel reminded attendees that insurance—while highly ripe for innovation—is also a highly regulated industry. The panel (“Balancing Innovation and Regulation”) featured Michael Consedine (CEO of the National Association of Insurance Commissioners), Ted Nickel (Insurance Commissioner of Wisconsin) and Chris Cheatham (CEO of Risk Genius).

Here are our key takeaways of that panel discussion.

Recent policy shifts are driven by consumer demand.

Over the past 200 years, the insurance industry has gone through periodic changes. But, as Consedine explained, this is the first time that significant changes are being driven by consumer demand. Specifically, consumers are demanding simpler and more intuitive policies; a streamlined and digital application process; faster claims payments; mobile access; and new products, such as peer-to-peer or pay-as-you-go. Insurance regulators nationwide realize that innovation will lead to consumers being better served, and, as a result, they are taking an active role in being a part of the conversation and enabling innovation.

Traps for the unwary mean that insurtech startups should engage with regulators early and often.

Once a company begins to analyze risk or price products, it runs the risk of being considered an insurance company and, more importantly, being subject to a host of often complex regulations that vary from state to state. For instance, while the amount and quality of available data are exploding—opening up the possibility of using new or unconventional data to price risk—state laws prohibit not only unfair discrimination generally, but also specific factors from being considered when pricing risk. In other words, as Mr. Nickel explained, a data set may show that there are more pool deaths in years when a Nicholas Cage movie is released, but whether that correlation is actuarially sound, let alone a fair basis on which to make pricing or rate decisions, is something that companies should discuss with regulators before launching. The same is true with respect to other issues, such as privacy or cybersecurity regulations—companies should understand the regulatory regime in which they operate and ensure that they are in compliance. To that end, Mr. Nickel encouraged companies to engage regulators from the outset to explain how a new algorithm or business model works to ensure that they are not running afoul of state regulations.

If you are a broker, be aware of anti-rebate and anti-inducement laws.

Nearly every state (with the notable exception of California) has some form of anti-rebate or anti-inducement laws on the books. Generally, these laws prevent a broker from providing something of value to a customer to “induce” an insurance purchase. While promotional items, such as golf balls and pens, are often exempt from such laws, a company must be especially careful when it begins to offer—at no charge—more valuable goods or services to its customers. According to Nickel, these laws might be particularly problematic for new entrants into the industry. For example, if a broker provides a wearable device to its customers, might such a gift implicate anti-rebate laws? What about specialized software provided at no charge? New companies in the broker space should ask themselves these sorts of questions sooner rather than later, seeking out counsel when necessary to avoid regulatory issues down the road.