The InsurTech evolution is transforming insurance

Risk Management

Analytics tools are giving insurers new insights to accurately assess risk, says Preeti Asthana

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1 November 2021 | 0

In association with Aon

The global pandemic has tightened the c-suite’s focus on digitisation. In a world that has become more volatile and interdependent, businesses want to leverage technology to obtain advanced insights to intensify real-time client interactions.

InsurTechs are playing a role in driving this innovation, forcing the insurance industry to make important decisions about how best to adopt an emerging business model to respond to the new normal.

 

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Personal lines insurers were early adopters, starting with digital distribution. Now this channel is shifting towards small and medium enterprises to secure an important but underserved market segment. As customers become increasingly sophisticated and demanding, emerging business models are relying on informed decision making to match risk to capital, even in challenging areas like insuring intangible assets.

A parallel trend is the emergence of alternative distribution models, for example, insurance that’s embedded into retail and financial transactions. The growth of complementary ecosystems offers a one stop shop for risk mitigation needs at the point of sale. Another model is parametric insurance. While adoption remains questionable at this time, it continues to be a popular supplemental option. Tech giants are becoming the platform for building parametric style offerings allowing better data connections for innovative insurance programmes.

Deploying underwriting automation triaged with Big Data and human intervention provides prescriptive actions for dynamic risk assessment. This is another growth area where predictive analytics tools enable insurers to supplement existing information such as historical claims with new insights to accurately assess future outcomes and to price risks.

Meanwhile, insurance products enabled by Internet of Things (IoT) technology provide rapid data collection at scale for use in risk pricing and loss mitigation. IoT platforms that aggregate data across multiple sensors and different types of risk are unlocking potential across multiple industries including automotive, construction and manufacturing.

Partnership decisions

With insurance incumbents and disruptive start-ups cycling through such projects, capital will continue to flow into the InsurTech space. It has become clear that partnerships will pay an even bigger role as many InsurTechs are really enabling tech that are bringing new opportunities to the engagement model.

Aon recognises the value of partnerships: we collaborated with Athenium Analytics to co-develop ClaimsSignal, a claims quality tool for clients. In another example, we’re partnered with The Climate Service, which produces scenario analyses to help clients reduce earnings volatility and improve balance sheet resilience.

What makes an InsurTech partnership work?

The decision-making process has many different dimensions.

A value proposition that clearly focuses on an unmet need, which is differentiated from competitors, is a prerequisite. The business model should have the ability to scale and generate profits. Ultimately, transformative business ideas beyond customer acquisition and automation that drive profitable growth and improve operational efficiencies are important considerations for partnerships.

Partnerships are a natural way to experiment with cutting edge technology. A key benefit that incumbents gain when partnering with emerging technology firms is speed of innovation.

Other fundamental considerations, around strategy and vision, worth remembering include:

• Alignment on how monetisation will work without being a distraction to strategic vision
• Exit strategies to avoid ‘unholy matrimony’
• Cultural and geographic alignment

The optimum partnership creates an environment where everyone wins. Customers gain access to cutting edge technology that materially increases revenues or decreases costs.

The net innovation benefits not just the industry as whole, but society more broadly, and creates a more competitive environment. The major risks impacting society, such as climate change, cyber risk and the impacts of automation, are too large to address alone and too relevant to clients to set aside.

Growing a stronger ecosystem

There’s consensus that the InsurTech market will keep growing. One recent report predicts growth of $21.72 billion, progressing at a compound annual growth rate (CAGR) of over 36% for 2019 – 24. Another paper, values the global InsurTech market at $5.48 billion in 2020 growing to $11.23 billion by 2027, with a CAGR of 10.80%.

Strengthening the innovation ecosystem requires an informal, collective agreement that we are all trying to move the industry forward. While there is always healthy competition among rivals, there are many areas of growth and efficiency where multiple parties can win. Overall, the industry is becoming more collaborative with incumbents and new entrants taking a platform approach to try something new.

As these relationships are refined and matured, more high-quality and long-term partnerships eventually take their place in the mainstream, transforming the impact of the insurance industry through a stronger ecosystem.

Preeti Asthana is director and head of global programmes, innovation and partnerships at Aon



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