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10 Insurtech Trends at the Crossroads

The emergence of insurtech has reshaped the strategic insurance agenda. Here are the top 10 insurtech trends as we enter 2018.

Insurtech Trend #1 – Automation will replace human effort across the entire insurance value chain

This is a trend that is not unique to insurance. But it is a trend that will significantly affect the insurance sector. This is because much of the insurance industry still operates in pre-internet ways. It is also because many personal lines are being atomized. Small parcels of insurance protection cannot be packaged and sold with human input and remain cost-effective. It is also because customers demand it. They want a purely digital experience that does not require human contact when a machine will do nicely, thank you.

One to watch: ZhongAn

Insurtech trends article: Is the Rise of the Digital Advisor the new InsurTech Game Changer?

Insurtech Trend #2 – Insurance premiums will become highly personalized based on greater tech-enabled insight on customers and their individual risk

When you add together the massive growth in new sources of data together with tech-enabled data science, it is inevitable that premiums will become highly personalized. This will be enabled by tech such as wearables, telematics, IoT and smartphone apps. Not to mention the ability to build insights through relationships that exists across data sets. Gone will be the days when people of the same age and gender, with identical cars or homes living on the same street, will pay the same premium. In the future, other factors will apply to reflect greater granularity in their individual risk profiles. Data science will become a key set for underwriters and actuaries.

One to watch: Sherpa

Insurtech trends article: Insurance distribution is about to get personal

Insurtech Trend #3 – The blockchain era has begun, and there will be a rapid shift from pilot to production of distributed ledger technology

It is hard to find a major insurer that is not involved one way or another with a blockchain initiative. This will only continue as this disruptive tech continues to prove its ability to provide a viable solution. Of course, there are still some big questions to answer in terms of scale, performance and security, but those answers will come. The big breakthrough in insurance for blockchain will be in the back office for the complex and global world of wholesale, commercial and reinsurance (which is desperately in need of moving into the internet age).

One to watch: ChainThat

Insurtech trends article: R3’s partnership with ChainThat is one giant leap for insurance

See also: Insurtech: The Year in Review  

Insurtech Trend #4 – The lines between the old and new will blur as insurtech becomes mainstream by 2020

The defining characteristic of the Fourth Industrial Revolution is speed of change. This certainly applies to insurtech and its impact on the world of insurance. The rate at which insurtech startups are popping up all over the world is not surprising. Everyone wants a piece of this $7 trillion cake. The incumbents have responded, too. By investing in, partnering with and acquiring insurtechs, the incumbent insurers have wholly embraced the movement. This will lead to the creation of whole new digital brands, designed to cannibalize traditional business. And because it is simply too expensive and takes too long to transform legacy operations, the incumbents will ring fence and run them down.

One to watch: Munich Re

Insurtech trends article: Digital transformation is the strategic imperative no insurer can ignore

Insurtech Trend #5 – Digital engagement through lifestyle apps will change the relationship dynamic between insurer and insured

Lifestyle apps are the norm. It is hard to find anywhere in the world where this is not the case, so lifestyle apps are the perfect vehicle to provide the peace of mind that customers want when they buy insurance. Instead of the annual chore of hunting for the lowest-priced insurance then having nothing more to do with it unless you suffer a loss, lifestyle apps offer value on a daily basis. This makes them sticky, which, for insurers, means less churn. They also give insurers greater insight into their customers’ behavior, which means better-informed risk assessments and personalized premiums. And they build brand loyalty, which, if you believe in behavioral economics, will result in lower levels of claim embellishment and fraud.

One to watch: Metromile

Insurtech trends article: Metromile, the pioneers of digital engagement

Insurtech Trend #6 – The all-in-one insurance policy is here to stay

It has taken longer than I predicted back in 2015, but the all-in-one insurance policy is here. From a customer’s perspective, the all-in-one policy makes perfect sense. Especially for the millennials and Gen Y’s. Why can’t they simply have one relationship with one insurer and have everything covered in one go? And it’s not just for younger generations. Imagine giving the insurer the details about your car, home, health, travel, pets and possessions. The insurer gives you one overarching policy, a fair price and the ability to flexibly adjust the cover as needed. Operating on a membership model, the platform can provide safeguards and advise the customer on good and bad decisions. This is AI territory and relatively straightforward to automate. IMHO, this is a winner; watch this space!

One to watch: Getsafe

Insurtech trends article: Getsafe take the Lemonade model one step further

Insurtech Trend #7 – New models will challenge the traditional insurance value chain 

In the digital economy, where insurance is embedded into lifestyle products or distributed through ecosystems, the traditional insurance model doesn’t work. The inherent inefficiency in a highly intermediated value chain, too dependent on human effort, makes insurance products expensive. When as much as 80% of premium is lost on distribution, leaving barely a fifth for the risk pool, you know something has to change. In the words of Jeff Bezos, “your fat margin is my opportunity.” These new models will see the carriers squeezed as the reinsurers provide risk capital directly to digital brands. Regulatory frameworks will be reworked to reflect these shorter value chains that don’t require the many layers they have today.

One to watch: Amazon

Insurtech trends article: Redefining the insurance value chain

Insurtech Trend #8 – Lemonade has set the pace in Insurtech 2.0; copycats will follow

The first phase of insurtech was all about distribution and data. Then came Lemonade. In September 2016, they launched in New York, and a year later they cover around 50% of the U.S. population with their renters and home insurance products. For me, Lemonade have defined Insurtech 2.0. Many insurtech startups claim to redefine or reinvent insurance, but they simply don’t, whereas Lemonade has. It is inevitable that the copycats will appear. Some will be insurtech startups, although they will need to be as well-marshaled, experienced and funded as the Lemonade team to have any chance of success. And some will be the incumbents, which will have a go at creating a Lemonade model from within. These will almost certainly fail!

One to watch: Lemonade

Insurtech trends article: Lemonade really do have a big heart, killer prices and instant everything

See also: Top 10 Insurtech Trends for 2018  

Insurtech Trend #9 – Claims settlement will become an automated, self-service and quick-to-pay experience for customers

Insurers spend too much of a customer’s premium on handling the claims process. This is because the process is manual. And because the carrier wants to double-check the claim. And because customers don’t always tell the truth. And because there is too much time in the whole process. And and and and and. The insurtech solution is to put the claims process in the hands of the customer. This sounds counter-intuitive, but it isn’t. Taking a self-service approach, the customer provides video and images at FNOL and is in control of the claims process. Automated reviews of claims handle the vast majority of cases and award instant payouts. The money can be with the customer in a matter of hours. No long processing cycles, no time to embellish the claim and high levels of customer satisfaction. Those that fail the automated review are the exceptions handled by the carrier, which is what they’re looking for anyway! This will become the norm for claims management, once the fears and resistance of the lifelong claims directors can be overcome.

One to watch: Rightindem

Insurtech trends article: Democratizing insurance claims restores trust for customers

Insurtech Trend #10 – Tech-enabled loss prevention will become a key feature in the insurance product

Advances in everyday technology are increasing the ability to predict the likelihood of an event or outcome occurring. In home and motor, tech is being used to model behavior and identify exceptions. Sensors and phones and devices are all collecting data that define our individual norm (as opposed to a collective norm). As a result, any deviation can be instantly assessed, and action can be taken. To handle scale, this is 100%-automated, driven by AI and machine learning. Which means the opportunity for insurance is immense, because, instead of being a passive risk taker (which carriers are today), insurers will become active risk managers.

One to watch: Surely

Insurtech trends article: Digital implementation is the strategy insurers have been looking for

Insurtech prediction lists from previous years 

Looking forward with insurtech Insights – 10 predictions for 2017

Daily Fintech’s 2016 predictions for InsurTech

Sign up for more insurtech Insights here

Insurtech: The Year in Review

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….

See also: Insurtech: An Adventure or a Quest?  

The role of the tech giants

“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:

  1. 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.
  2. 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.
  3. Digital platforms are permitting MGAs to go direct to customers.
  4. 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.

Customer-driven approach

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.

See also: Core Systems and Insurtech (Part 3)  

Partnerships and alliances critical for success

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

Where next?

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.

What P&C Insurers Are Missing

Twitter feeds of industry influencers lit up about ZhongAn’s recent $1.5 billion stock offering. There was a feeling in the air that the P&C insurance industry had finally turned a corner, reaching for direct-to-consumer distribution with open arms.

However, customer satisfaction studies from J.D. Power indicate that U.S. insurers aren’t quite there yet. While more consumers shopping for auto coverage use D2C channels for quoting, only 10% of those quotes turn into new business.

Consumers have high expectations when purchasing products through digital channels, so insurers need to provide more than a pleasant experience. They need to provide a wow moment.

We recently conducted a survey of P&C insurers. What we found is that the “wow” experience is eluding many. While 68% say they view digital distribution as the most important aspect of their future growth, fewer than 25% are fully happy with their efforts to date.

The elusive “wow” factor is holding many insurers back from realizing the benefits of going direct-to-consumer.

What are they missing?

Raising Acquisition Rates in P&C Insurance

Insurers that aren’t online are missing the chance to engage with nearly 70% of the market. That’s the number of consumers who prefer to use online channels to research coverage.

Turning a casual observer into a customer depends on the strength of your D2C capabilities. Some websites are off-putting. They speak primarily about the insurer, provide a complicated quoting process and fail to advise customers on coverage gaps. In this digital environment, the customer feels like a pawn, being moved through a complex series of maneuvers to determine product pricing or to purchase insurance coverage.

If we turn this scenario around to one where the website speaks to the customer, provides easy quoting of insurance products and advises the customer on coverage gaps, we see a more personalized shopping experience emerge.

See also: 3 Ways AI Improves P&C Economics  

In case you’re wondering how open consumers are to this type of digital advisorship, Accenture has an answer. It recently polled more than 32,000 consumers and found that 74% are open to advice about insurance from digital sources, and many find that it’s faster, offers greater convenience and delivers more impartial guidance.

A comprehensive direct-to-consumer strategy plays a strong role in acquisition rates. A leading D2C insurer expanded its digital capabilities and saw new business increase 8% in the quarter the enhancements were made.

Supporting Customers in their D2C Experience

While consumers are keen to embrace digital, what happens when they have a question that can’t be answered online? They are going to need an agent, but after experiencing the top-tier digital bliss of your D2C channel they aren’t going to be inclined to purchase if the agent is slow or less personal.

Industry influencer John Cusano said that to complement digital distribution channels, and remain relevant to their customers, insurance advisers need to use an array of digital tools to efficiently manage routine tasks as well as to service increasingly demanding and knowledgeable customers.

That means uniting siloed systems and giving agents a single view of the customer across products.

When insurers get this right, it plays a big role in generating new business, as is evidenced by a prominent insurer in the D2C space. This insurer recently enhanced the digital experience for its consumers and internal agency. As a result, conversion rates rose to 35%, and sales doubled year-over-year.

Customer Loyalty Is Possible in P&C Insurance

Bain’s recent survey of 172,000 insurance customers confirmed what many in the know have been indicating for a few years now. Frequent interactions generate loyalty.

Historically, insurance has been a low-touch business. Insurers send out renewal papers with a request for payment every six months to a year and, beyond that, only engage with customers if there is a claim.

Consumer demand for high-quality touch points goes back to digital pioneers like Amazon. They’ve constructed a business out of putting customer needs at the forefront and generating a “wow” experience from the first interaction.

As customers make their way across a site, they are guided by product recommendations and pricing comparisons. Each of these touchpoints make customers feel central to the buying experience, and they come back for more.

This is where D2C comes in for insurers. Digitizing customer information makes for more efficient data retrieval and better application of consumer analytics. The insights derived can pinpoint interaction opportunities, including cross-selling moments, all in real time.

According to Bain, the more touchpoints the better, as insurers that master the art see net promoter scores that are 15 points higher than other insurers.

D2C Adds up to Stronger Acquisition, Retention and Loyalty

In our survey, 77% of insurers are seeing demands for direct-to-consumer channels of engagement. That’s because consumers have grown accustomed to interacting through the channel that is most convenient in the moment, and they like the simplicity of purchasing online.

Insurers with strong D2C channels send a clear message to consumers. It says they are in touch and ready to put their customers at the center of their business strategy. Customers deliver loyalty in return, driving up retention rates and buying more products.

See also: P&C Insurers: Come Out of the Dark Ages  

To better serve customers and encourage retention, a top customer-experience leader recently improved its direct-to-consumer offering. Despite increasing its advertising budget, the insurer reduced its expense ratio and increased conversions 4% in a single quarter.

Are you still searching for a digital identity? If so, what are the main impediments you’re facing?