By Dan Epstein
Insurtech was once the Wild West of the insurance industry. Many of insurtech’s early players came from outside insurance after observing the industry struggle to deliver what was, in their view, a competitive customer experience.
Led by ambitious entrepreneurs from outside insurance, backed by Silicon Valley and focused on industry disruption, early insurtech initially promised to displace incumbents and usher in a new era of insurance offerings and tech-driven solutions.
Nearly 10 years since its inception, the reality of insurtech has evolved.
The messaging about supplanting industry giants is gone. In its place is a more collaborative environment led by insurance industry leaders partnering with tech solution providers. The simple reality is technology cannot do everything. The integration of experienced insurance professionals and tech is needed to manage across the insurance value chain.
There are powerful drivers of change toward greater automation: insurance professionals aging out of the industry, consumer expectations changing, the transformation of risk itself through the Internet of Things, the continued fragmentation of the industry and legacy systems that don’t talk to each other.
Startups and incumbents alike are embracing these challenges through innovative methods designed to drive change across the value chain. Customer journey mapping, design thinking, lean process mapping and intelligent automation all have become increasingly part of the industry’s response to evolving customer service needs.
The new promise — the modern concept of insurtech — is the embrace of a strategy driven by collaboration and innovation rather than disruption.
The Era of M&A Is Here
Currently, insurtech is creating buzz through mergers and acquisitions, further integrating innovative technologies with insurance industry leaders.
Last year’s acquisition of Indio Technologies by Applied Systems is one such example. Applied saw the acquisition as an opportunity to bring Indio’s digitized commercial insurance application and renewal process to Applied’s agency management system, Epic, which serves thousands of agency and brokerage customers.
According to Applied CEO Taylor Rhodes, the integration of Indio reduced double entry for customers at the point of renewal or application within the company’s Epic system. It also allowed for a more productive application of Applied personnel elsewhere in the renewal and application process while improving customer experience.
Another example of this M&A era is the 2017 deal between Vertafore and RiskMatch. The latter is a business intelligence and analytics company serving insurance brokers and carriers. The deal allowed Vertafore, an insurance technology firm, to better compete with competitors like Applied Systems for analytics and risk placement services by substantially enhancing Vertafore’s data and market insights to improve efficiency and profitability.
In both examples, as seen elsewhere across the industry, standalone technology solution companies are either being acquired or are partnering with industry leaders to apply those tech solutions to operational capabilities with existing reach into the insurance space in an effort to reduce complexity, create efficiencies and maximize the productivity of insurance professionals. And the numbers back up this assertion.
Deloitte Center for Financial Services reported in September that insurtech investments for the first half of 2019 were on the rise at $2.2 billion at the mid-year mark, while the number of insurtech startups had declined. (Editor’s Note: In a recent update, Deloitte reported an increased figure of $3.3 billion.)
Additional examples of big carriers investing in digital platforms that support their core and ancillary business markets are ample, such as Chubb’s 2018 investment in Bunker, Munich Re’s 2016 partnership with Slice Labs, Prudential’s $2.35 billion acquisition of Assurance IQ. There is a veritable laundry list of insurance leaders investing in or partnering with technology startups to apply digital solutions to their established processes to maximize the customer experience.
The reality is simple: Technology alone will not fully eliminate the challenges that surround key processes like claims, which is the foremost area the insurance industry is moving to address.
The combination of innovative technology solutions and startups with more established industry players offers exciting promise for the industry — assuming we don’t lose sight of the need to ensure a solution that serves humans must also be driven and populated by humans.
Put simply, there is no general artificial intelligence (AI).
Algorithms, bots and other technologies are not end-to-end solutions. These tools are highly localized and offer a narrow focus.
As part of a process, they offer greater efficiency and a streamlined manner to consumer data analytics. However, as technology in the insurance industry’s past has proven, technology alone is not a solution. In fact, adoption of technology without an underlying strategy can create tremendous inefficiency to insurance processes, adding complexity and creating more costly issues for companies in terms of time, personnel and customer service.
There is tremendous emotion around claims and losses. Technology can help in managing the claims process, but humans with customer service skills will remain a critical part of the process, allowing for insight, empathy and creative thinking that no algorithm can yet replicate.
With a hard market on the horizon, the complexity of applications and claims will grow. As this more complex situation evolves, standalone AI solutions will likely fail to adapt, while integrated technology solutions driven and overseen by insurance professionals who have lived through prior hard markets and know what to expect can help best guide their companies and their customer service experiences.
Advice for the Future
Companies that will succeed in this new industry landscape will be those whose leaders think big but start small. The temptation is to chase the big, shiny objects. This was an early mistake of many insurtech startups. The reality is that so much can be gained from small, incremental improvements.
Start by taking a close look at existing processes through the eyes of the customer. Design thinking and customer journey mapping ought to be part of the daily conversation of management looking to insurtech for solutions. Insurtech is the culmination of a lot of these things. Look outside of the insurance industry for inspiration.
Look for companies that can help alleviate some of the more complex pieces of digital transformation. Some of the most successful advances in insurtech to date have come from organizations that took an honest look at their tech and innovation deficits and identified an effective partner to maximize what they do best with new thinking and processes. By freeing up time to focus on the core business pieces, they seek to drive growth and success.
As we move into a harder market, additional burdens will be placed on agents and carriers to manage submission flow, markets will become more restrictive, submission volume will go up along with exceptions and exclusions. Insurtech alone cannot solve for these realities.
In the hard market to come, there will be a premium on customer service and customer satisfaction. Technology can certainly help mitigate some of the burden agents and carriers will face. Addressing coverage needs and solving claims challenges, however, is a big part of what will be needed.
This will require both a tech-based and a human-centric solution.