As one Japanese insurer replaces humans with AI to calculate payouts, Tim Evershed reports on what we can expect from InsurTech in 2017.
The recent revelation that a Japanese life insurer intends to replace 34 employees with an artificial intelligence (AI) system has given credence to the predictions that 2017 will be the year that InsurTech takes off within the insurance industry.
According to those forecasts, exciting new technologies ranging from blockchain to drones, data analysis to crowdfunded insurance, and the Internet of Things to AI, will change the way the industry operates.
THE RISE OF AI
That is certainly proving the case at Fukoku Mutual Life Insurance, where IBM's Watson Explorer AI will start to calculate payouts to policyholders, instead of the process being carried out by staff. The company expects to save around £1m a year on a system that cost £1.4m to implement and will require another £100,000 per annum to maintain.
"The thing we'll see in 2017 with InsurTech that we haven't seen before is a proposition that helps with the expenses of insurers related to AI," says Mike Fitzgerald, insurance partner at Celent. "The insurance industry is ripe for it, so we will start to see more solutions around AI process automation."
Last year, InsurTech investment passed the £1bn mark for the first time, according to a report from CB Insights. However, it is not just venture capitalists making investments in the InsurTech space, but also insurers and reinsurers as they explore how startups can work directly as part of the insurance value chain.
Jonathan Howe, UK InsurTech leader at PwC, says: "We won't see InsurTech companies taking over insurance; when we buy insurance we will still generally buy it from the incumbents. There are quite a lot of InsurTech firms doing customer engagement but they are not underwriting it, so they tend to be more like brokers or tied agents.
"The big impact we will see this year will be a much greater proportion and willingness of those incumbent insurers to work with those startups. Traditionally, insurers have looked internally to when there are opportunities in the market, whether that be new products or new systems. They are now looking outside the business to [the] InsurTech ecosystem. That's going to be the big change this year."
This was in evidence recently when insurance broker Bought by Many, which uses social media and search data to offer 'insight-driven' insurance to customers, raised £7.5m of funding in a round led by Octopus Ventures and Munich Re.
Bought by Many also separately signed a long-term insurance agreement with the Munich Re digital partners business unit.
"If you take the knowledge of the insurance product, especially regulatory, and how to navigate that and marry it with tech, that's a different way of producing insurance automation," Mr Fitzgerald adds.
A recent report from Standard & Poor's (S&P) also notes that big data analytics will need to be tied to industry knowledge if it is to realise its potential to disrupt the insurance business.
S&P states: "Although technology startups can gather a huge amount of potentially very valuable information about customers, insurers are in a better position to turn this data into a competitive advantage."
According to the ratings agency, an increasing number of insurers have cited InsurTech and digitalisation as emerging trends and are rethinking their strategic options for the future.
It adds: "Initially, insurers view InsurTech as a means of pruning costs and are seeking first-mover competitive advantage. Digitalisation has the capacity to support insurer efficiency, as is already happening in motor and health insurance, where we are seeing claims being reported through mobile applications."
Another reason 2017 is expected to be such a watershed one for the InsurTech sector is purely due to the timing of the investment cycle. Venture capitalists want to see the investments made in 2015 and 2016 beginning to pay off as startup companies begin to grow up.
InsurTech startups are working on a wide range of insurance technologies, from cloud datastores to collaborative microinsurance, from machine learning to drone technology. Others are working with telematics, big data and other emerging technologies to support and strengthen the insurance value chain.
Mr Howe predicts: "We will see lots of machine learning, whether that is insurance pricing and underwriting, whether that's around claims and fraud -- it will make a big difference.
"We will see new product offerings around pay-as-you-use insurance. Cars where people pay by the mile they drive, or renting out space in the home; areas where the sharing economy has changed demand."
BUMPS IN THE ROAD
However, Mr Fitzgerald recognises that there remain challenges ahead for insurers and InsurTech alike.
"Getting customers interested in insurance in a different way is proving to be a bigger challenge than people thought. The thinking used to be that you made it direct and online; if you built it they would come.
"The sad fact is people don't think about insurance that much. People have their patterns and they have to be interrupted and challenged for some of these things to work,"
Mr Fitzgerald concludes.
10 START-UPS TO WATCH IN 2017
- Adapt Ready, a startup from the US, is delivering risk intelligence and analytics to global corporations by apply big data and predictive analysis to pinpoint how customers' operations and supply chains could be impacted from extreme events.
- Aerobotics, from South Africa, is using drone technology in the agricultural, logistical, and mining industries to acquire better data analysis using AI algorithms, and to help farmers farm more efficiently and to allow insurers to price and assess damage more effectively.
- Emerge Analytics, from South Africa, is using big data, artificial intelligence and a scoring platform to solve complex business problems, such as sales/marketing and fraud prevention.
- Insure A Thing, from the UK, is building a scalable platform that fundamentally reverses the operating model by charging payments in arrears and by taking a fixed fee on settled claims, to protect the things customers love.
- LifeSymb, from Sweden, is using an artificial intelligent health robot that uses multiple sensors, such as 3D depth cameras and accelerometers, to collect movement data about a person to provide automatic health and fitness recommendations.
- NuvaLaw, from South Africa, is a digital negotiation platform between motor vehicle insurers. The product introduces workflow and measurable efficiency to an environment that is currently unstructured and also facilitates online dispute resolution information exchange.
- Port, from the UK, is a personal information cloud datastore for insurance business and people. They make it easy for companies to acquire, store and manage personal information in a legally compliant way, while using the consented information to deliver new personalised products and services.
- Sharenjoy from Spain, is using artificial intelligence to offer collaborative micro insurance for people attending public or private entertainment events.
- TikkR, from Sweden, is providing short-duration and on-demand insurance protection to insure specific moments, mainly targeting millennials.
- TrackActive, from the UK, is reducing cost of claims through better outcomes by using a telehealth assistant platform proposed to provide better care at lower cost through technology that detects engagement, reports on adherence and outcomes, as well as placing accountability on the patient and their health practitioner.