Insurtech – My 20 predictions in 2020 (Part 2)

Last week I gave the first 10 of my 20 predictions for insurtech in 2020. Some great dialogue back and forth from fellow LinkedIn members including some interesting views on AI, blockchain and IoT impacts on our industry in years to come

This week I give my final 10 predictions.

As always I welcome dialogue, thoughts and (dis)agreements!

Here goes….

Prediction 11 – Technology-based Managing General Agencies (MGAs) will grow in prominence and leave their traditional cousins in the dust

Managing General Agencies (MGAs) have been a wonderful innovation in our industry over the past few decades (some traditional underwriters might hate me for saying that!). But, the ability as a carrier to partner with an agile, nimble and entrepreneurial entity such as an MGA to seek new niche business (often in new products & territories) and underwrite (including the potential to handle the claims) all on the carriers’ behalf (in return for a commission incl. potential profit commission) has generated big benefits for both parties.

However, there are some notable challenges of partnering with MGAs. One has been the difficulty in oversight & management of underwriting guidelines imposed by carriers and regulators. Another has been the lack of technological integration between carrier and MGA. Unbelievably, premium and claims borderaux (a regular report providing premium or loss data with respect to identified specific risks entered into by the MGA on behalf of the carrier) can still change hands via PDF documents and Excel files – resulting in enormous inefficiency, re-keying data etc.

Technology will solve that.

Azur Underwriting is one of those solving it. Having raised nearly $18m in venture-backed funding and risk capacity provided by AIG & Ascot, the UK-based insurtech MGA is a cloud-based insurance platform that offers an end-to-end solution from broker onboarding, through quotation, binding, policy documentation issuance and premium collection, enabling users a cost-efficient option that offers an easy underwriting experience.

I expect more like Azur to show the way to other, more traditional MGAs.

Prediction 12 – Data Science will go beyond underwriting and venture into the reserving process

I’m fortunate that in my current role I’ve seen up close the benefits that data science and advanced analytics has brought to the underwriting process. Enhancing risk selection, pricing, propensity to bind etc has been a huge boon to underwriters willing to expand their horizons to learn the benefits of best-in-class data science capabilities.

Our own advanced analytics group at Liberty Mutual is one such group providing some outstanding modelling capabilities & insights to front-of-house underwriting teams.

I’m going make a bit of a bold claim here and suggest that data science capabilities will begin to focus on other important areas for carriers – e.g. the reserving process.

The (often complicated & highly subjective) reserving process is critical to the ongoing health and profitability of any risk-bearing insurance business. Our industry is unique in that we operate the Warren Buffett-coined ‘collect now, pay later’ business model. We know the value of our income (premiums) up front but the value of our biggest cost (claims) might not be known for many years. Hence, the importance of adequate reserving – putting aside sufficient reserves to pay future unknown claims.

Reserving has traditionally been the domain of experienced, qualified actuaries, but I think data science is going to prove more and more important in this space. Going deeper on data sets and challenging traditional thinking will have a big effect on business models, insurer profitability and reserving approaches in the years to come.

I expect 2020 to see the start of this trend in a meaningful way for the braver, bolder players.

Prediction 13 – Digital ecosystems will continue their ‘exploratory’ phase but not quite take off in 2020

The idea of the digital ecosystem in re/insurance is not new. Bringing together carriers, brokers, technology players and insureds to ‘e-trade and e-place’ business is growing.

Commoditised product lines (those products with no identifiable differentiator between players, often resulting in price wars) have been best suited to digital ecosystems. Using a technology platform to bring transaction costs down has been helpful.

Chain That is one player that has been exploring this in the reinsurance space within Bermuda and more recently have also been knocking on the London Market’s door with their offering.

I still think 2020 will see exploration rather than major traction. Some players in the value chain will not like a tech platform inserting itself into the transaction cycle and established relationships take time to break.

Prediction 14 – Social inflation challenges will drive insurtech-based solutions

‘Social inflation’ has been the big buzzword recently.

Over-zealous courts giving large pay-outs and settlements to plaintiffs has driven up loss costs significantly. With year-end 2019 results season in full swing, the number of Q4 ‘reserve charges’ (increasing reserves to put aside more cash to pay future claims, hence reducing current profits) has been increasing for most major insurance groups.

One area where insurtechs could add significant value is to support modelling of court payouts and its likelihood to affect the profitability of accounts being underwritten. There are some players already in the market doing this, but it often takes a significant market shift or ‘crisis’ to jolt players into action.

Expect more to come in 2020.

Prediction 15 – Lloyd’s Lab Cohort 4 will accelerate the technological transformation of the market

The Lloyd’s Lab (Lloyd’s of London’s in-house startup incubator & accelerator) has been a good example of the international specialty arena waking up to take advantage of insurtech.

Since its launch in 2018, the lab has been home to a number of interesting players focused on the underwriting process, data modelling, claims efficiency & Regtech.

Blueprint One and The Future of Lloyd’s vision has set out an ambitious roadmap for modernising the nearly 340-year-old insurance marketplace. It’s future relevance in the global insurance arena depends on it.

Cohort 4 will see the lab evolve further, with more mature and sustainable startups/players come in to further refine their offering to the industry and hopefully find some clients and funders.

I expect this cohort to be the watershed moment for the lab in supporting the modernising of the market.

Prediction 16 – The Supply Chain industry will begin to see the benefits of insurtech focus

The supply chain and logistics industry has a huge impact on the way the modern world lives out its life. One-day delivery, internet shopping and moving goods around at ever-increasing velocity has immeasurably improved consumerism.

Insurance has typically been an afterthought, and yet the transformation of the supply chain industry will increase and redefine exposures, which require protection. Insurtechs are beginning to focus their glare on this still fragmented, yet critical global industry and I’m expecting some big moves by insurtechs to take advantage of things like embedded insurance programs and point-of-sale easy insurance cover.

Prediction 17 – Blockchain will continue on its slow path to relevance in the industry

Blockchain and distributed ledger technology (DLT) has long been mooted as a key unlocker of value in the insurance business. Much like AI, it’s been hyped to the ‘nth degree’ and traction hasn’t nearly been as smooth as I would have expected.

Why not? – is anybody’s guess, but the education piece of this emerging technology is still underway. Bitcoin, the phrase most synonymous with DLT in recent years, has had its reputation enhanced and then reduce as much as its volatile unit price. But DLT has been up against one of the most difficult challenges of all that insurtechs have faced when entering the marketplace.......inertia. The re/insurance industry is not a fast adopter of new emerging technology and these things just have to run their natural course.

I’m not expecting wholesale acceleration in the adoption of DLT, but rather a slow and steady improvement in traction.

Prediction 18 – Cyber CAT event will spook the market

Stephen Catlin (founder of the eponymous Catlin Group and now re/insurance startup Convex Group) famously recently said that insuring cyber ‘terrified him’. The difficulty in identify, measuring and managing exposures as well as a lack of historic reliable data has made it a tricky product line for a number of incumbents.

Most cyber events have been either localised or under-insured resulting in more muted damage. British Airways and Hilton cyber-attacks in recent years being some of the highest profile.

Unfortunately, I’m predicting that will change and 2020 may well be the year in which we see our first wholesale market-wide cyber catastrophe event. Why? – the world is becoming ever more interconnected through technology and malevolent players in this space are waiting to take advantage.

Insurtechs may well benefit, with cyber threat detection specialists and analytics firms becoming more important as these threats manifest.

Prediction 19 – Best-in-class insurance players will continue the search externally for ideas and talent

In Part 1, I predicted that the insurance industry would begin to see a shift in the Future of Talent (Prediction 3).

The best-in-class carriers, brokers and specialists know that with the evolving re/insurance landscape and data & technology playing an ever more important role, the fight for the best talent and ideas is heating up.

Looking outside of our industry to technology, banking, retail, academia etc will unlock greater value though diversity of thought, ideas and solutions. Our industry isn’t seeing the level of in-flow talent it needs to answer some of these challenges so looking outside and attracting in the best talent will be the way forward.

Prediction 20 – Autonomous transportation will continue to rewrite the boundaries of insurance innovation

Autonomous Vehicles (AV) industry is predicted to grow to over $500bn industry by 2026, almost 10x from where it is today, according to a report by Allied Market Research. The huge explosion in AV investment is upending the insurance industry also – a critical component of the transportation industry’s functioning.

Auto is 40% of the global risk pool, so that's a lot of dollars (think 'trillions' of dollars) at risk from AV disruption. How our industry responds is critical. I’m pleased to know that the re/insurance industry has not been lying down when it comes to AV and is intimately involved in supporting the rewriting of new legislation with government, providing thought leadership in AV systems and responding with new products and solutions.

I’m expecting 2020 to highlight some high-profile moves by the industry to respond to the disruptive change that AV is causing.

So there you have it. The final 10 of my 20 predictions for insurtech in 2020. This year is going to be a big one (as we say every year!) and I’ll be assessing how right (or wrong) I was with these predictions about a year from now. Thanks for your support and look forward to hearing any thoughts you may have. Stay tuned.