A three trillion dollar opportunity
Embedded insurance is not only a massive opportunity for the insurtech space, it’s the future of insurance, says Paul Jones
Insurance Insider’s May InsiderTech Live event focused on the insurtech market and the evolution and future of embedded insurance. There was also much focus on insurtech innovators taking market share away from traditional channels. Incumbents are spending big; suddenly the leading insurance players are investing significant amounts in technology. All early-stage companies are going to pivot, which means that the ability to be agile and flexible is going to be essential.
The potential is huge, however. Take the example of PayPal. One single payments company is worth more than every insurtech in the world combined. It shows how much room is still left to grow in the insurtech space.
Even though valuations are high, insurtech is still going to be worth a lot more as an industry five years from now than it is today.
One InsiderTech Live panelist said that people think of embedded insurance as a default insurance or automatic insurance, or just baked into the product, which is a very narrow interpretation or definition of embedded insurance. Others see it as a $3tn opportunity.
Embedded insurance is certainly an exciting space. The property and casualty industry is very broad, ranging from personal lines to commercial lines to specialty lines so everyone's definition of embedded insurance will vary, based on what product lines you focus on.
Embedded insurance can be extremely customized, based on the purchase, at the time of purchase, and can also enhance the value of the overall purchase because it is bundled, so it's no longer an ‘asynchronous transaction’.
It then becomes something that is really crafted for what the customer is experiencing at that moment and optimised in a way that is a ‘no brainer’ for the consumer.
All the ecosystems in which we embed our insurance solutions will help drive a more accurate underwriting process. Data is a key element that supports better underwriting, creating a more elegant user experience or journey.
The key to success will be making it a no brainer for the customer, not because you are selling it to them in a way where it makes it hard for them to opt out, but because it's so obvious that they should buy because of the way you have distributed and priced it. It is about the customer.
As another panelist at the May InsiderTech Live event said: “I struggle to think how we would have coped without electronic trading.”
The big mistake to avoid is to take a paper-based process and replicate that in the electronic world, which gains nothing. The idea is to create data-driven processes as ‘data first’; completely rethink our business chains and business models both for the underwriter and the broker. Imagine a world in which an underwriter receives the submissions all data driven.
In the Lloyd’s Blueprint Two, the rationale is about cost savings, but actually, the benefits go far beyond price and include better price discovery, better efficiency of the market, better allocation of capital, and ultimately writing many more risks and more difficult risks. That is the future 5-10 years from now.
Also discussed at InsiderTech Live was the huge scope for startups and insurtechs to engage with the market. One example given was the need to partner analytics with a user interface, adding functionality around sanctions checking. This is indeed a tool that DOCOsoft has already successfully developed and rolled out with a number of our clients.
Other tools and functionality mentioned by a panel at the event included a piece of software focusing on the visualisation of construction sites, mapping them using visual technologies, primarily to aid architects and engineers, but which has into risk management and then into insurance applications.
Yet another example in analytics is a company that was set up to manage solar panel assets. If you have a solar panel form, it tracks the assets, their usage and the output - and has again evolved into risk management as an insurance application.
Hybrid underwriting approach
Predictive analytics is part of the future of underwriting, according to panelists at InsiderTech Live. Will that replace a lot of underwriting questions and proposal forms? Without a doubt. There will of course continue to be a place for underwriters, with their own unique skill sets and experience.
In the future, however, it seems that the winners in the new insurance landscape will need to marry insurance expertise with technological knowhow to survive and thrive. Bodies like the Chartered Insurance Institute will have an important role to play in this environment.
There was also much talk of software engineers being asked to obtain CII certification, which is certainly a route that DOCOsoft already adopts.
A blend of insurance expertise and technology is the recipe for success. Collectively we need to do the same in the opposite direction. We need to make sure that everybody who works in insurance has a grounding in technology.
Using data to understand emerging risks
One final area of interest to come out of the event was the idea that insurers need to get closer to the original risk, to better understand emerging risks.
One of the things that is exciting for reinsurers about the startups is the quality of their data and how much they know about their book.
The difficulty is that the underlying data has so many errors with missing information, or a lack of consistent sources being formatted in ways that are easily digestible. Tools are being built to help traditional carriers to solve that challenge.
The ability for a firm to understand tranches of their portfolio and cohorts of their client base is something that the reinsurers can really sink their teeth into.
The objective is to evaluate risk at a much more granular level rather than relying on a ‘mystery box’ for pricing. From the ground up, there is so much more granularity of data input, which must be the future for the industry.