04 Dec 2017

The Future of Insurance: Thirty Years’ Change in Three Years?

By: John Baker

The Future of Insurance: Thirty Years’ Change in Three Years?

"The insurance industry will change more in three years than in the last 30, and the disruption that is about to hit us won’t take that long to change the landscape," said Pranav Pasricha, CEO of Intellect SEEC and Carrier Management contributor. The drivers are, not surprisingly, big data and artificial intelligence. And they're going to make their presence known in all areas—from distribution, to underwriting, to claims.

Machine learning can predict loss propensity across thousands of factors. Loss detection and fraud detection can be more accurate. Payments can be faster. But innovations such as these aren't merely fine-tuning the direction of an otherwise stable industry. In some cases, insurtech startups are getting ready to take the wheel for themselves.

Insurtech startups going rogue

Fifteen hundred tech startups are planting their flag in the areas of insurance and risk management, according to Joseph Harrington at Carrier Management — with or without collaboration from traditional distribution partners. With 140 venture capital firms betting $6 billion on them, these startups have both capacity and motivation to proceed on their own.

This marks a change. About 10 years ago, tech startups approached insurers as vendors. “Now they’re no longer vendors,” said Jacqueline Lesage Krause of Munich RE/HSB Ventures. “They’re not waiting for you.” Krause says that startups have discovered how to become MGAs and they're going to market as such, innovating across the entire value chain, from sales, marketing and distribution to underwriting, loss control and claims.

They're able to do so for two reasons: the cost is lower (less than 10 percent of what it might have been 10 years earlier, by one account) and the capital available is high. "In a decade, our venerable, well-established carriers with legacy systems and cultures — if they manage to survive — will be anachronistic," said Kathleen Reardon, CEO of Hamilton Re.

Legacy methods will kill or be killed

We've known for a long time that the legacy claims systems hobbling traditional insurers were a ticking time bomb. Today, that's impossible to ignore. If the old behemoths don't get the ax, their presence will prove fatal to insurers that harbor them.

Insurtech startups — or risk transfer startups, as the case may be — have the speed, agility, and capital to "fail often and to fail quickly, and move on and learn from that," said Keith Moore, CEO of CoverHound Insurance Solutions. Tony Attia, CEO of Slice Labs, put it this way: "We can build a whole insurance company faster than we can integrate into your claims system."

But he's not ringing the death knell for traditional carriers just yet. "Insurance companies are resilient, and they can continue to be resilient if they move quickly and decisively," Attia said.

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