Insurers prepare for the coming wave

The talk from ITC Vegas, 2022 – Insurtech 2.0 is on its way!

InsurTech Connect, the world’s biggest insurtech event, was even bigger this year. In late September, attendees gathered in Las Vegas to discuss where the industry is heading. What’s being talked about and what does it mean for the marketplace? One of the major themes this year was the shift to insurtech 2.0.

Over the last decade or so, insurtech 1.0 brought insurance into the digital era by allowing customers to buy and manage insurance online and through mobile channels. Insurtech 1.0 was fuelled by front-end innovation, and this development led to many new players in the market experiencing rapid growth and offering a dramatically improved customer experience.

The problem here is that the industry had simply found new and more modern ways of selling the same old product – but consumers are increasingly demanding innovative new products that meet their changing expectations and lifestyles (one in five customers, for example, say a lack of personalisation is a main reason for leaving a provider (1)). Insurtech 2.0, by contrast, aims to transform the foundations of insurance products by modernising risk modelling and underwriting, using new and emerging technologies.

Transforming underwriting and risk assessment

The ability to quickly assess risk and create an accurately priced product is the foundation for developing an offering that matches the digital experience of insurtech 1.0.
The traditional manual analysis of actuarial data which forms the basis for premium pricing is time-consuming and doesn’t allow for the much larger quantities of data that insurers now have access to. For example, data that used to be updated annually on policy renewal might now be updated every few minutes, or even every second, and this is a valuable resource.

To take advantage of new sources of data and to create the kind of products that customers demand, then, underwriting needs to move from manual methods to much more intelligent ones based on deep learning, machine learning and automation.

This is insurtech 2.0. With this foundation, dynamic new products can be created on demand that can be underwritten in real time as soon as the data is available, providing an instant digital customer experience that tallies with customer needs – more than half of consumers would choose insurtech products over traditional ones due to the coverage they offer (2). This also paves the way to automate the claims process, and to enable dynamic repricing.

Automation for scale and speed

To design, deliver and sell the new products that customers want, insurers need to be faster and more agile in the way they handle insurance processes.
AI-driven automation is key here, since the amount of data available to insurers is growing, and it isn’t possible for a human to analyse the relevant data and then handle a claim or underwrite a policy or develop a new product in just a few minutes.

These tasks require a great deal of labour- and time-intensive data analysis, which can increasingly be handled by automation underpinned by AI and machine learning. By reducing or even eliminating these tasks for human handlers, staff are freed up to work on higher-value activities, making it easier to attract and retain employees.

Ultimately, straight-through processing (STP) for the whole insurance process will become more realistic with greater automation. It also makes it easier to dynamically reprice the product in real time based on, for example, customer life events or behaviour, so that underwriting becomes a more continuous exercise instead of only taking place on renewal.

According to McKinsey, AI implementations could increase productivity in insurance processes and reduce operational expenses by up to 40% by 2030 (3). Reducing costs will allow insurers to either create more inexpensive products or to offer more for the same price. Automation also makes growth more sustainable, because it’s easier to handle a larger number of claims without having to dramatically increase the number of employees needed to handle them.

New ways to market: embedded insurance

Currently, insurers need to put a great deal of money and time into driving potential customers to their websites or agents. Embedded insurance – where it is a native feature embedded in a platform, marketplace or ecosystem – allows insurers to have a presence in spaces where customers already are, instead of trying to get the customers to come to them.

For example, embedded insurance allows providers to offer ski insurance while consumers are buying lift passes online. At its simplest, we might see a link to the insurers’ website from the lift pass website. With greater integration, however, we’ll start to see the insurance options embedded in the host environment, so the person purchasing the ski tickets doesn’t have to leave the website to get a quote and to buy their insurance.

In the future, even greater integration would allow for an exchange of data between the host platform and the insurer, which could further reduce the barriers to purchase by prefilling all the relevant fields and making life easier for the customer. This reduces the cost of finding new customers and opens the door to much more personalised and relevant insurance offers.

This idea isn’t new, but with the modernised underwriting discussed earlier, it should become more realistic in the coming years – embedded insurance is predicted to rise from 2-5% of the total global market to around 25% by 2030 (4).

Insurers must act now

To survive and thrive in the new era of insurtech 2.0, insurers must begin by transforming underwriting: this is the essential basis for creating new and more innovative products. Combined with the greater efficiency, scalability and speed that automation promises, this foundation paves the way for new ways of working in a digital world, such as embedded insurance. Moving early with these technology developments will allow insurers to capture a greater share of the market and make growth sustainable.

(1) The Customer Compass: Navigating the Future of Insurance, 2020, EIS
(2) Insurtech 2.0: Insurance Reimagined, 21 April 2021, Companjon
(3) Insurance 2030—The impact of AI on the future of insurance, 12 March 2021, McKinsey
(4) Embedded Insurance: Coverage When You Need It, Where You Need It, EIS