Technology has disrupted almost every major industry over the past 30 years and financial services is no exception. Yet a closer examination reveals that there have been vastly different rates of innovation and adoption of new technology in the constituent sub-sectors that make up the industry. The insurance sector has been one of the laggards1. Has the industry fallen so far behind that it risks becoming obsolete, or is there still time for innovation to make a real difference?
Historically, insurance has been slow to adopt new technology, primarily due to the high running costs of incumbent systems. This has resulted in insurers having more limited budgets available for innovation compared to banking, for example. Encouragingly though, there are signs of innovation becoming more widespread.
In the US we have seen the emergence of Lemonade, who are bringing a fresh approach to domestic insurance as they believe the industry is overly-complex and will benefit from bringing technology and transparency to the business. Their operating model reverses the traditional insurance model with a commitment to take a flat fee, pay claims fast, and make donations to good causes customers care about. Underpinning this approach is their app, Maya, which features an artificial intelligence bot allowing customers to get coverage in 90 seconds and receive a claim pay-out in three minutes. Elsewhere, there are leading (re)insurance companies using blockchain (e.g. Insurwave, the world’s first blockchain platform for marine insurance) and artificial intelligence (e.g. the ability to buy life insurance using a “selfie”) to differentiate their business.
So, there are increasingly signs of change and that is as it should be given there is a strong case for innovation across the industry. The costs of doing business are too high and the customer experience is often too slow and cumbersome. Cat modelling costs, which have historically been enormous, given the limited number of vendors, can be significantly reduced using platforms like our own ModEx solution which utilizes the open source Oasis Loss Modelling Framework for developing, deploying and executing catastrophe models.
Data is increasingly at the heart of all modern businesses and technology is key to acquiring, processing and making sense of it all to improve the customer experience and insurers’ ability to assess risk more comprehensively. Companies like Insurdata provide peril-specific, current, accurate data at the highest resolution globally for all lines of business to assist risk assessment. Another example is Cytora who utilize artificial intelligence and machine learning to transform billions of external data points into a risk solution which simultaneously improves the accuracy and sophistication of risk selection and removes friction associated with the insurance buying process by replacing questions with thousands of data inputs, enabling underwriting to be completed more quickly. This focus on obtaining external data can help improve the customer experience (as customers need to provide less information) as well as improving the insurer’s ability to assess risk (as the external information is often better and has a wider scope than that provided by the customer).
While these examples are encouraging, it remains the case that many of the new innovative and disruptive fin/insurtech firms that have sprung up are at risk of being purchased2 by the incumbent players in the industry and may disappear inside the larger corporate body. The danger remains that by buying a fintech, the incumbents feel they have fulfilled their innovation requirement, but nothing has truly changed at the core of their business.
The old adage of ‘Innovate or die’ remains highly pertinent for an industry that needs to embrace the potential of technology soon or face becoming increasingly irrelevant.
Despite the embryonic evidence of new disruptive firms and technology solutions appearing in the industry, incumbent insurers remain behind the curve when it comes to leveraging the benefits of new technology. The old adage of ‘Innovate or die’ remains highly pertinent for an industry that needs to embrace the potential of technology soon or face becoming increasingly irrelevant. Innovation is as much about mindset, attitudes and behaviors as it is about new technologies and solutions. The real revolution required is to evolve the prevailing culture across the industry so that organizations become more inquisitive, agile and willing to explore the benefits new technologies may deliver.
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