Authored by Sabine VanderLinden CEO for the InsurTech Business at Startupbootcamp and Rainmaking.
For many insurance professionals, the word ‘InsurTech’ is met with a visible smirk or cringe. It’s become a buzzword with negative connotations because, in many instances, InsurTechs haven’t yielded the promised collaboration results.
This is illustrated well in Deloitte’s 2020 Insurance Outlook – for the second year in a row, launches of new InsurTechs have come to a virtual halt, with only a handful entering the market after hitting a high of 479 in 2016.
With near to $7Bn received investment so far, the highest year since the launch of InsurTech as a category, why do InsurTechs continuing to be so well funded?
And why are insurance businesses ploughing millions into their InsurTech innovation programmes?
Quite simply, because the market is still at its earliest stage and there certainly is money to be made – we just need to get better at identifying the opportunities and then backing the right horse.
After a year examining market forces and speaking to heads of innovation units, I am happy to share the feedback and outline my top five predictions for InsurTech trends in 2020 – and AI and machine learning aren’t anywhere to be seen!
1 - Health & wellness: prevention precede protection
As the air we breathe, the water we drink and the food we eat continue to become some of the most precious commodities we consume, our world will demand for corporations large and small to be worthy of our purchasing power.
The healthcare sector is being disrupted by tech entrants rising from core and adjacent industries. These players are able to combine data and emerging technologies to change our behaviour towards healthy living, promoting wellbeing for all ages while supporting large corporations in gradually adapting key priorities towards things that truly matter.
Prevention is on the card. We have seen pure digital players such as Oscar, Clover and Bright Health jointly raise $2.6Bn in investment in a market valued at $10+Trillion at least, setting new customer engagement standards and combining the very best of digital platform and ecosystem building techniques to address really deep societal challenges. This will progress to an accelerated level with Tech giants and retailers targeted a few billion’s market share.
2 - Autonomous driving: Not as far away than what you think
Every year, there are 1,000s of fatalities and injuries resulting from motor accidents and an estimated 90% of these arise from human error. Autonomous driving has the potential to remove the risk from human error and could therefore have a dramatic effect on road safety. Google’s redesigned Prius has driven more than 700,000 autonomous miles without a single accident. This reduction in risk could cause third-party damage insurance to disappear. orbes estimated that premiums could be reduced by as much as 75% as a result. Accenture predicts $81 billion in new insurance revenues just in the US between 2020 and 2025.
As cars become more automated, risks will likely be transferred from the individual driver to manufacturers. Accidents will be principally caused by system malfunction, forcing manufacturers to insure whole fleets of cars instead of individual drivers. This shift will result in insurance moving from personal lines motor insurance to commercial product liability insurance with the introduction of big aggregation risk caused by system failures affecting multiple vehicles at once. Watch out for auto-manufacturers looking to strike interesting new re-insurance partnerships.
3 - Climate change: Increased accountability for those that create the damage
Over a two year-period, natural catastrophes caused a record $225bn of insured losses. More than 50% of those losses are the direct result from "secondary" perils: independent small to mid-sized events or events that occur as a secondary effect from a primary peril. These perils have been rising due to the ongoing increased in urbanisation, consumerism, and climate change.
Indeed, earlier this year, insurers warned that climate change could make cover for ordinary people unaffordable after the world’s largest reinsurance firm blamed global warming for $24bn of losses in the Californian wildfires among others. Clients holding concentrated assets in vulnerable locations will likely experience the impact of increasing risk pricing and premiums. The result is that people on low and average incomes in some more exposed regions will no longer be able to buy insurance.
Insurers will continue to pay close attention to the growing trend created by fossil fuels and the risk they represent. Still, the existing protection gap is an opportunity for the insurance industry to support more of the global population build resilience, deploy more sustainable ways to operate and be better prepared to manage the financial hardship that disaster events can inflict. I very much think that climate actions are likely to become one of the defining issues of our times.
4 - Inclusion: Don’t ignore that underserved segment of the population
To follow from the previous comments, over 3.8Bn of low-income individuals in emerging countries or the lowest 60% of income do not have access to insurance today. This represents 8.6% of people with no bank accounts in Europe. Increased mobile phone penetration has helped alleviate some of the risk for the most vulnerable populations. Still insurance is not always available for all and leaves significant sectors of the population vulnerable to disasters and other tragedies. Underserved segments of the population will need educating about the benefits and risks of insurance products as well as change insurers’ mindsets in the way products and services are being designed.
This is where inclusive insurance can help insurers access newer risk pools by serving those that have not been served by traditional insurance. These may include lower middle classes with an emphasis towards the most vulnerable and low-income populations. “Accessing the low-income population is so important in closing the protection gap” states European Central Bank president Christine Lagarde. Insurers are now seeking to serve these underserved niches through various initiatives such as investing in and collaborating with InsurTechs to tailor unique value propositions. Nonetheless, inclusive products will still continuously to be judged on their ability to deliver social impact while yielding financial growth and profitability too. The microinsurance movement will gain momentum and focus in 2020.
5 – AM Best Innovation Score: Driving the transparency of future innovation leadership
Early 2019, AM Best released a first draft of its innovation score which will be finalised and deployed first half of 2020. The score will assess companies based on 5 criteria - leadership, culture, resources, process and structure - from an activity/ delivery, transformational outcome and impact achieved viewpoint.
While AM Best confirms that the score will not affect a company’s rating at first, organisations will need to respond to it by demonstrating how their overall group strategy is aligned with the innovation activities they have in planning and are deploying projects that deliver measurable and tangible benefits that support the resilience and adaptability of the business towards a more digitally friendly world.
Organisations don’t have must choice. They will need to be ready to demonstrate that they are delivering true innovation rather than delivering lip service to it. This will entail adapting internal methods and approaches to meet required cultural and structural innovation shifts and evaluating, creating and building relevant capabilities to support innovation objectives and evolve incentive structures. This will entail collaborating with startups and focusing on delivering production-ready implementations to augment existing core competences with new sets of assets. There will be successes and failures in 2020 and more transparency on the true insurance innovation leaders and best practices.