Insurtech has become something of a buzzword in the insurance industry, but delve a bit deeper and it is a very nuanced world.
Covering everything from underwriting to claims and property insurance to life, insurtechs seemingly touch on every part of the insurance ecosystem.
But with so many companies falling under the widening definition of the term, how do insurers know where to look to find the insurtechs that are winning the race and having the largest impact?
For Sebastien Bert, head of strategic partnerships US at Swiss Re, some of the most prominent names in the insurtech revolution are having a significant effect on the distribution space.
“This is because they give us access to risk pools, either new or existing, that we don’t typically see through the traditional reinsurance channels: the carriers,” he says.
“This allows us to cultivate partnerships with the next generation of reinsurance clients, because a lot of these companies start off as an MGA, then they become a captive and then graduate to an insurance company.
“In the last seven to eight years we have seen more of these companies take control of their reinsurance spend,” he adds.
A key point is that one of the biggest areas within distribution today is embedded insurance.
“Insurtechs enabling embedded insurance are going to be true winners and have an impact because they’re doing two things,” Bert says. “One, they’re really moving how insurance is distributed. Historically, insurance companies have spent a lot of money and resources trying to bring the customers to where the product is sold, and now embedded insurance and these insurtechs are trying to work with corporates in these platforms to reverse that idea and bring the product to where customers live, work and shop.
“That then drives down the cost and makes it easier for customers to access insurance products.”
But insurtechs don’t always need to focus on reinventing the wheel.
“Sometimes the opportunities are simply the problems that you think should have been solved a long time ago,“ says Bert.
This is particularly important in the property reinsurance market, where underwriters traditionally may not have had full knowledge of the risks they already had on cover in a certain area, meaning they could leave themselves overexposed.
The insurtechs of today, however, are solving this problem by creating geolocation datasets that can provide detailed rooftop-level data around a variety of different building types. They then feed this into models that allow reinsurers to fully understand their aggregate risk position.
Matthew Grant, a partner at InsTech, said companies like Allphins and Addresscloud, for example, are building tools to do just that, focused around the aggregation of risk.
Ian Anson, managing director at Rokstone, says the changing climate and increased frequency of extreme-weather events are creating new opportunities for insurtechs that can provide further insight into these phenomena through the use of artificial intelligence.
“We have invested heavily in our exposure management technology stack in the past year,” he explains. “We believe that as weather patterns become increasingly volatile, more granular and reliable exposure data will be a determining factor of alpha for the next few decades.
“While stochastic vendor models have become the globally accepted market standard for property portfolio modelling, technology enhancements through the value chain are increasing the speed, accuracy and quality of the data collection process.”
Jonathan Prinn, CEO at Inver Re London, says advancements in these areas are creating new product lines for reinsurers to get to grips with.
“Parametric products are becoming much more commonplace, increasing the understanding of such, and aligning to more traditional risk transfer,” he explains. “Tech in this space has genuinely helped, creating models for wildfire and the like and scales and triggers to generate a ‘loss’.”
Grant, a partner at InsTech, thinks insurtechs are also helping reinsurers deal with another traditional problem of the sector: legacy systems. “Past barriers have sometimes been around getting access to data sitting in old legacy systems that you could never get the data out of,” he says.
“Now there are tools using low-code or no-code solutions that act as a wrapper around or can stick onto existing legacy systems to pull that data out. This can then be analysed and acted on and put back into the existing system, all without the company having to rip out and replace their existing systems – which is expensive, takes a long time and is probably going to fail.”
But Bert says that having a niche – such as property or distribution – is still one of the key traits he sees in the most successful insurtechs. “Focusing on one line of business or market segment gives them the opportunity to create true differentiation and add a competitive edge relative to the incumbents in the marketplace,” he says. “Those that operate in broader spaces
have a lot more competition, and that makes things difficult for them and what makes them different gets diluted.”
However, Grant says it isn’t always the most exciting ideas that have the biggest impact. “Some of the initial excitement of insurtech is now levelling off into the reality of what people really want and what they actually do,” he explains. “A proven and important, but not very exciting, example of this is extracting non-structured data from PDF forms or submissions.”
Ultimately, however, it all comes down to costs, and Bert says companies that can reduce insurer expenses are going to be the real winners of the insurtech revolution. “Those insurtechs that have proprietary technology that can drive down costs – whether that’s in terms of acquisition or losses – are going to have the biggest impact.”
