September 26, 2017 by Mukul Ahuja
Historically, insurance has frustrated consumers, with 62% of Canadians viewing a visit to the dentist as preferable to thinking about their coverage. Some traditional insurance products and services have not kept pace with the changing demographic and psychographic profiles of today’s consumers. Innovators from within and outside the insurance industry have found new business opportunities in solving these points of customer friction, using technology to create and capture value. This has given rise to a growing InsurTech ecosystem.
InsurTechs use technology across various parts of the insurance value chain to address customer pain points and evolve business models to be more effective or efficient. There are now more than 800 InsurTechs globally, which have attracted US $9.8 billion in venture capital investments since 2012. Of this, US $4.3 billion has gone to players focused on digital distribution, primarily in personal and small commercial lines of business. Other key areas of investment include simplification, self-service, connected devices/ sensors and cybersecurity.
Interest in InsurTech among Canadian insurance executives has accelerated over the past 12 months as several innovative ideas and business models (e.g., Lemonade, Metromile, Trov and Sonnet) have come to fruition in the market.
The scope of innovation has now expanded well beyond product and distribution to all parts of the value chain, including pricing, underwriting, servicing, claims and risk capital. New entrants are beginning to demonstrate the value of applying modern techniques, such as user-centred design, rapid prototyping, agile delivery and predictive analytics. They are making a case to the industry that the benefit of innovation will likely outweigh the potential pain of evolving from legacy to modern business models in the mid- to long term.
Venture and corporate venture arms—and re-insurers in particular—have provided much of the risk capital and funding support to high-potential startups, removing some of the traditional barriers to entry, and are now gaining market authority, social influence and rapid upscaling. As a result, insurers are now actively scanning venture activity and accelerating their innovation and R&D strategies—whether it’s build, partner or buy—with appropriate due diligence and prioritization.
The broker’s role of prospecting and engaging customers with expert guidance, service and timely advice positions them to best understand evolving customer needs and friction points. The number of InsurTechs entering the market as brokers or MGAs is creating a sense of urgency and momentum for brokers to adjust their current processes and adapt to reinforce existing client relationships.
Many brokers are reinventing themselves to include digital service propositions and multiple modes of customer interaction, while others are leveraging InsurTech solutions designed for brokers (like data mining, social listening and chatbots) to differentiate and extend their value proposition to customers.
Another one of the key impacts will be in driving greater efficiency in the broker operating model. Digitization, automation, big data/analytics and machine learning tools should fine-tune the nature of advisory versus administrative activities in the broker office, and help shape the broker of the future.
InsurTech will continue to be guided by the needs and shifting behavioural patterns of consumers, with new and innovative startups honing in on areas with the largest profit pools at stake. As existing trends continue, three related areas will become greater points of focus.
First, InsurTechs will harvest more data in real time and use advanced analytics to more effectively assess risk, personalize pricing and provide an enhanced customer experience. Many already draw extensively on third-party datasets when quoting, and monitor customers’ driving or lifestyle habits to reward safer practices.
Second, artificial intelligence will address opportunities in five key areas:
Finally, connected devices will help companies better assess risk and offer additional services. InsurTechs offer the potential to anticipate and prevent (or eliminate) risk, rather than recover the losses in the case of unforeseen events.
Mukul Ahuja is a strategy and innovation leader at Monitor Deloitte, and primarily advises global and Canadian financial services clients on formulating and activating their growth and differentiation agenda.
Copyright © 2017 Transcontinental Media G.P. This article first appeared in the September 2017 edition of Canadian Insurance Top Broker magazine
This story was originally published by Canadian Insurance Top Broker.