In the next few years the insurance industry is set to undergo a radical transformation unprecedented in its several centuries of existence, thanks to insurance software and its core investors: reinsurers. We have the inside perspective.
Until recently, it was business as usual.
The growth of fintech – a term first coined around 1993 – gathered momentum with the maturity of Cloud technology, SaaS and online banking, from around 2011. Yet it’s only been in the last five years that insurtech, a logical sub-development in the wider fintech landscape, has set in motion an era of change for insurance.
By 2019, there were roughly 1 500 insurtech startups around the world – and more than $9 billion in disclosed capital had been committed to 700+ insurtech investments in the previous five years. Clearly, the stage is set for a new model of insurance.
For reinsurers, insurtech offers three game-changing advantages:
Availability of real-time data
Traditionally, reinsurers had to act on the aggregated information given to them by the primary insurers they backed, with little direct insight into what was happening “on the ground”. Now, advanced and intuitive data analytics provide reinsurers with a clearer and more detailed picture of market dynamics and trends.
Insurtech enables a higher-level data flow in real-time – and the ability to verify that data, because it exists as a Cloud-based single source of truth, accessible to all stakeholders. Insurance revolves around the flow of information and, when that information becomes more detailed and granular, efficiency is improved overall.
Most importantly, the data helps reinsurers to mitigate risk; In underwriting, reinsurers can now use predictive analytics to help their insurers better understand new or evolving risks. In claims, reinsurers can predict what kinds of claims are likely to soar in the near future, and work with their insurers to take protective measures.
Reinsurers now have the ability to hyper-localise the market in the way they couldn’t before, meaning they can choose to take on risk in certain locations but not others, or target specific insurance lines while sidestepping others, depending on how the data guides them.
New revenue streams
Because it carries the ability to remove most of the middle of the traditional insurance chain – brokers, call centres, claims administrators et al. – insurtech opens up the opportunity for reinsurers to become financial service providers (FSPs) in their own right. Additionally, the assurance of accurate data and reporting through technology helps them to meet often-stringent regulations in different countries, paving an easier road towards becoming a regional or global FSP. Many reinsurers are partnering with, or investing in, insurtech start-ups with this goal in mind.
In particular, reinsurers are seeing a significant potential revenue stream in the retail space, where insurtech enables them to easily distribute embedded insurance for retailers’ products; the latter seeing value in the arrangement too, because of how the perceived “free” insurance – a Value Added Service – will boost loyalty in their customer base at a relatively low cost.
Amidst Covid-19, reinsurers point to the logic of a more remote-enabled,Cloud-hosted industry model that will prove more resilient to unforeseen global challenges in the future: digital self-service claims applications and processing, especially in lines like home and auto insurance, and less reliance on legacy operational models like busy call centres housed in sprawling physical premises.
For most reinsurers, the adoption of tech feels quite natural. Many are already largely remote and covering localised insurers around the world. They also tend to have a higher ratio of venture capital to human capital, and the nimbleness of that capital allows them to jump on to promising new ventures with agility. This capability aligns well with the fast-moving insurtech start-up community.
In embracing insurtech, reinsurers are gaining the ability to change the insurance chain from its traditional linear form to something more fluid; engage with insurance customers more directly; leverage niche insurance opportunities, and deploy investment in response to data-driven business strategy.
As customers and reinsurers become more digital, it will be interesting to see how primary insurance companies respond or, and how quickly they respond – and respond they must. The recent history of other sectors impacted by disruptive technology – like entertainment, retail and real estate – would suggest that progress is inevitable.