You might think that Australia is behind the rest of the world when it comes to insurtech - but it’s not. After seeing what’s on offer in both Europe and Australia recently, I identified four key insurtech trends.
1. Data is improving insurance products
Many incumbent insurers have legacy systems that hold important data. An increasing number of startups are focused on helping insurance companies retrieve this data. With this data, insurers can place more emphasis on statistical positions rather than the personal experience of underwriters and the information they receive from the insured. These insights will help them underwrite and price risk more effectively and pave the way for more innovative insurance products.
Brisbane-based insurtech Codafication is using data to empower the industry. Awarded the DIAmond award at DIA Munich in October last year, their API plugs into existing legacy systems and pulls data out so insurers can use it. Effectively, they help insurers mine their data and manage their various databases and systems using a user-friendly dashboard interface. This is just one example of an Aussie startup helping to solve a global problem.
2. Product innovation + data + tech is king
Parametric insurance is another area where data is being used to effectively price risk. The insured doesn’t need to establish they have suffered a loss. The insurer simply pays a claim when a defined event occurs. While parametrics won’t suit every scenario, they’re a useful client-centric alternative if data can be used effectively to get the pricing right.
Several companies in the UK are already using parametric insurance. FloodFlash uses a water depth measure in a property to calculate when to pay out a claim for flood. While Setoo provides a platform allowing insurers to design on-demand parametric insurance like a policy that pays out if it rains while you’re on holiday.
In Australia, Audeamus Risk (2018 Fintech Startup of the Year winner) is using data mining, telematics and IoT in conjunction with parametrics to deliver a solution for business interruption and supply chain risk. Currently beta testing, they use a clever combination of business risk assessment tools that are data and technology driven.
Some products are also using big data analytics to price risk in real time. In the UK, Flock offers insurance for commercial drones that can be switched on and off depending on when the drone is being used. Precision Autonomy, who has partnered with QBE, is offering a similar product in Australia.
3. Digitisation is changing the value chain
The insurance industry currently has a crowded value chain - brokers, underwriters, reinsurers and insurers all take a cut. This can add up to 40% to the cost of insurance. New participants and non-insurers, like Amazon and Alibaba, are cutting this value chain to pieces and delivering significant savings to consumers. They’re doing this by building great digital platforms where people can buy insurance for less. We’re already seeing this in motor, home and travel insurance, and there are opportunities in the B2B space as well.
Blockchain is also providing new ways for businesses to manage risks more efficiently. Championed by shipping giant Maersk, Insurwave uses a private blockchain to report the real time location of ships as they move around the world. Maersk can now manage its risks by either redirecting ships or buying additional cover.
In Munich, the insurance community has come together to build a private blockchain through B3i. This initiative brings together 38 brokers, reinsurers and insurance companies who are exploring how to use distributed ledger technologies. This initiative has the potential to revolutionise the way insurance is transacted at the high end of the market.
In Australia, blockchain hasn’t captured the imagination of the insurance community (yet) but the rise of platforms is certainly beginning to dis-intermediate the value chain. Evari offers an end-to-end dynamic platform to build and launch insurance products. Whilst CoverGenius offers a digital product design and build solution and claims management platform known as X API and X Claim.
4. Machine-based learning and AI are improving data extraction
There are many solutions entering the market that leverage machine based learning and artificial intelligence to improve accessibility to data. The technology lets insurers extract data so they can better understand risk and improve how they manage their claims. Data can be extracted from documents, emails and other sources of information that they maintain. This is empowering insurers to martial their data in a meaningful way using AI.
The Australian market leader in AI is Flamingo. They’re working with a range of US health and life insurers to develop their cognitive virtual assistants. AI like this will dramatically change the landscape for customer and service interactions and transform the call centre environment. AI can also improve regulatory compliance by assisting many Australian insurers to face the challenges of reviewing and regulating point-of-sale processes. This includes giving advice on claims and insurance.
Call centres may not disappear altogether in the short term. While there’s a need for customers to speak to a human there will continue to be a compliance risk. Using clever AI and tech like the system offered by Ksndra will help support insurers to manage their regulatory risks from human interaction.
The customer is leading the charge
These new trends in insurtech are being driven largely by the customer. People want a better experience and insurtechs want to deliver it for them. While this has the potential to democratise the industry, I don’t think the insurance industry will have its disruptive Uber moment until customers can own their own data. Australia is currently implementing open banking reforms but a similar movement in the insurance industry doesn’t appear to be on the cards.
Disruption is only a small part of insurtech. These trends are moving the industry towards disintermediation and innovation, which will have a far greater impact. But rather than breaking the industry, startups need help from the incumbent community. This is because they still face many of the industry’s barriers to entry. Startups want to test their technology within the industry and are open to collaborating with incumbents to do this. Over the next period, I predict we’ll see more collaboration between insurers, reinsurers and technology startups. They will all become ‘tech-enabled’ – effectively every insurance business will become an insurtech.
If you’re a startup or an incumbent and you’re thinking of partnering or piloting new technology, we can help you get to market quicker with expert legal advice, solutions and industry connections.