The re/insurance world has been grappling with the possibilities posed by insurtech for some years, but is it just a slogan, or a bubble that will burst, or is there something more tangible emerging? Bermuda:Re+ILS investigates.
Insurtech is a word that gets a lot of people very excited, as a possible game-changer for the re/insurance industry. Indeed, the use and benefits of technology in the world of re/insurance have been mooted for many years.
There have been several false dawns in places such as Lloyd’s, as innovation came up against tradition, but recent developments have seen more optimism about technology’s use in the market.
It is worth taking a step back and asking the question: does insurtech represent a game-changer for the risk transfer industry, or is it a bubble destined to burst?
That was the question Bermuda:Re+ILS put to a wide range of companies involved in the market, both on the Island and in the wider global sphere, where boundaries seem to be almost dissolving before our eyes.
We received a wide range of responses, a selection of which are published below.
It’s all about clients
Neville Ching, head of Capsicum Re Bermuda, says that, above all, insurers need to deliver a product that matches the buyer’s requirement—this is the raison d’être of insurance. One of the main challenges facing the industry is around its evolution, particularly in how to reach and interact with clients, he says.
“Another challenge is around product development and providing a product fit for purpose in this fast-changing, technologically-driven world we live in. Insurtech could be the answer in finding ways to respond to these challenges.
“It has been a great way for insurers to explore the opportunities to innovate without having to incur the cost to set up and recruit a team,” Ching says.
He notes that Bermuda is keen to be an established leader of the new revolution and position itself at the heart of the world’s insurtech infrastructure. Lots of work has taken place to source opportunities and support many of the current initiatives in the US, as well as those emanating from the global marketplace.
“It is a natural base for many given the proximity of the international insurance business,” he says, noting that the Bermuda Monetary Authority passed the Insurance Amendment Act in 2018, introducing two initiatives to provide a regulatory environment that supports the speed and flexibility that supports innovation: the insurance regulatory sandbox and innovation hub.
“The sandbox allows companies who fulfil certain criteria to test new technologies and innovative products, etc, to a select number of clients in a controlled environment and for a limited time,” he says.
“The innovation hub acts as a platform for exchanging ideas and information.
“Is insurtech a game-changer? It definitely has the potential to be as it can transform the distribution chain and enables insurers to innovate and enter new industries, access new markets and provide new products.
“There are a huge number of ideas available and large sums of capital are involved but not many insurtechs make it to market, and therein lies the challenge.”
No disrupters yet
James Willison, managing director of Web Connectivity Limited (WCL), says that insurtech companies bring vital components into the insurance industry, and are undoubtedly here to stay, but it hasn’t been the major disruptor that many have anticipated.
Initially insurtech was heralded as bringing about a digital revolution by disrupting existing players within the risk transfer industry and taking over their roles within the market, Willison notes.
“However, the insurance sector is a heavily regulated industry and with good reason—the insurance industry and its regulations are there to protect individuals or to restore properties and businesses after catastrophes,” he says.
“As such, it can be difficult to innovate from within an industry that is so heavily regulated—and near impossible to replace insurers that have strong and stable balance sheets with startups that do not have the same financial position and regulatory approval.
“For example, companies such as Google were revolutionary, but there was nobody already doing what it created, no regulations to overturn or red tape to cut through.”
Instead, he notes, successful insurtech companies will need to develop their businesses to support existing players within the insurance industry.
“Technology and the use of data are very important to the industry and insurtech is vital in influencing and developing how insurance companies use technology and data to improve business,” Willison says.
“While the industry will not be disrupted overnight, it does need to evolve and the way they will do that is through digital innovation and technology. The fundamental principles of business still have not changed.
“In order to do business and be successful you need to meet client needs, an understanding of regulatory frameworks and a strong balance sheet—all things that existing insurance companies have, and many startups cannot compete with.
“Insurtechs need to understand that they can collaborate with existing players—they will not revolutionise the insurance industry before learning the underlying business first. There have already been success stories in the market, for example, mobile insurance apps—a perfect illustration of insurers and insurtechs combining industry expertise with technology.”
Just a buzzword?
Hatem Jabsheh, group chief operating officer at International General Insurance (IGI), admits that insurtech startups have attracted a huge amount of interest over the past five years, claiming to be able to transform the insurance and reinsurance marketplace. But he is sceptical.
“As far as I can see ‘insurtech’ is simply a buzzword,” Jabsheh says. “If you really drill down and look at what the current ‘insurtechs’ are offering, it is just technology to enhance things such as pricing, reserving, claims processing and operations.
“They are not doing anything truly disruptive or transformative. They are just using existing technology and re-positioning it for the insurance community.”
An example of truly disruptive technology is the SWIFT system used in banking, he notes. The reason it is so easy to walk into a bank and transfer money anywhere around the globe is because of that piece of transactional software, which was designed specifically for banks. “No such technology exists in insurance that has transformed a part of the industry in the same way that SWIFT transformed payments transfers in the banking sector,” Jabsheh says.
“For an insurtech to legitimately say it is disruptive, it needs to change the whole business model—in the same way that the insurance-linked securities sector saw a gap in the market and revolutionised how property catastrophe risk is securitised. That was a game-changer.
“Insurtechs are being treated like vendors by the insurance companies, because at the moment that is what they are—technology companies.”
Opening data silos
Sofie Quidenus-Wahlforss, chief executive officer of omni:us, says that in her view, by enabling multi-channel (all channels but not integrated), and eventually omni-channel (all channels fully integrated) support with the help of insurtechs, insurers will be better able to exchange information not only with customers, but also among their internal departments and other third-party service providers, like sensor operators.
“Previously entrenched data silos can be opened up, to the benefit of insurer and insured alike,” Quidenus-Wahlforss says. “For example, if an auto-insured individual had a health policy with the same insurer, and her car accident was affected by a specific condition denoted in the health policy, this information should be promptly shared with the auto adjuster responsible.
“Such seemingly obvious information-sharing has so far been hindered by separate databases managed individually by respective lines of business or service providers.”
She notes that at the January 2019 World Economic Forum, Allianz stated that regulatory interest is to prevent or break up unwarranted data monopolies. “Data monopolies can prevent other businesses from developing and deploying intelligent products and services for their customers,” Allianz stated.
She stresses that insurtechs such as omni:us are focused on building comprehensive backend systems which focus on customers and their data from the first touchpoint, phasing out process-driven operations which often sideline the customer.
“Machine learning algorithms iteratively learn from processing discrepancies and errors and use this ‘education’ to avoid making the same mistake in future. Thus, frequently retraining models on growing data banks fine-tunes a company’s ability to recognise incoming fraudulent claims,” she says.
“This could be by matching the invoicing behaviour of a not very reputable car repair shop with that of another using similar methods. These patterns are difficult to spot with the human eye, but optimised AI thrives on them.”
Quidenus-Wahlforss says an estimated 10 percent of all paid claims are fraudulent. FRISS is an example of an insurtech company tackling such a challenge, which emphasises improving customer experience by prioritising legitimate claims, she notes.
“Entirely new datasets from GPS-based apps can enable new business models for offering coverage, such as Metromile and pay-per-mile insurance. Hyper-personalised options like this are extremely attractive to consumers and business owners in the age of the gig economy, P2P carpooling, and digital nomads.
“Insurers are also experimenting with novel ways of collecting data, eg, drones flying over disaster zones to rapidly appraise damage levels and structural integrity of rooftops, etc. This eases the bottleneck of onsite adjusters (a limited number), enabling a quicker service to distressed policy holders.
“Companies such as Converge develop technology to optimise these drones for insurers’ needs,” she adds.
Not fit to burst
Peter Clarke, founder & chief executive officer of Insurercore, stresses that technology in the industry is not new. Insurers and reinsurers were hit by the dot-com bubble not that long ago, in which they adopted online quote and bind systems, and insurtech will be no different.
The real game-changer within insurtech comes down to the type of technology these companies offer and their understanding of how the industry works, he says. Most insurtechs are technology companies coming into the industry trying to find a solution to a problem that doesn’t exist.
“They don’t truly understand the complexities and the idiosyncrasies of the insurance and reinsurance space. For example, many of the startups entering the sector bring with them a ‘peer-to-peer’ model, but this type of model was first established in the 1980s with the introduction of mutuals and is nothing new or disruptive,” Clarke says.
“I don’t believe that the bubble is destined to burst; successful insurtechs have come into the industry. What we will see over the next three to five years is the industry becoming a lot savvier about technology and how they use it within each company. Technology is constantly evolving and changing, and it will be a struggle for the insurers to maintain a state of constant innovation.”
For example, he says, blockchain may soon be replaced by quantum coding. Quantum computers have the capacity to impact the security aspect of blockchain due to the speed of quantum computers, making blockchain a highly vulnerable technology.
“For modernisation of the industry to be successful it will take cooperation from both sides. Insurers need to decide what type of companies they want to be. Do they want to build out an entire software department to cope with each new and evolving technology?
“Insurtech companies need to understand more about how the industry works and to build platforms that are able to work alongside the existing players.”
Wave becomes reality
Tom Johansmeyer, assistant vice president of PCS, adds that if the global re/insurance industry embraces and adopts insurtech, it could see a positive force for change across the entire risk and capital supply chain.
“Should our community remain committed to the status quo, however, then innovative insurtechs could face an uphill battle. In general, I see insurtech as a game-changer for risk transfer, particularly in the industry loss warranty (ILW) market, where the appetite to reduce friction is always a factor,” Johansmeyer says.
“Since my arrival at PCS, I’ve advocated for a new approach to ILW trading, with the belief that prior attempts at platforms were simply too early. The proliferation of fund-to-fund retro trades over the past few years, as well as the live and dead cat activity following hurricanes Harvey, Irma and Maria, suggests that the time is right for exchange-traded risk.
“Reduced time and effort to transact and the benefits of liquidity could yield a profound step forward for a market that has seen this concept as something of a no-brainer.
“Conditions have favoured the entrance of risk-trading platforms into the global re/insurance market for a while, but it’s taken the insurtech wave to deliver the extra push needed to make viable platforms a reality. In addition to a mechanism for placing and clearing trades, the inclusion of features for price optimisation using techniques common in other industries but new to ours could usher in a new era of risk and capital management.
“A decade ago, I remember folks in our industry talking about the hope of real-time risk management that could be enabled by ILS and liquidity. The insurtech wave could finally make that a reality.”