The InsurTech/FinTech Ecosystem

Sarah Hinchey

I remember when I first heard the term “InsurTech” back in 2015. I had recently moved to Silicon Valley after spending five years living and working abroad, and FinTech’s younger sibling, InsurTech, was rapidly gaining attention and making headlines. I remember reading articles about looming industry disruption from tech giants and digitally-born startups alike, and I wondered what this might mean for the industry as a whole. Were we about to experience a sudden revolution?

My intrigue led to action, and I attended several Silicon Valley conferences and events where I could meet the players in the InsurTech world to gain a better understanding of what was really happening. I went in expecting traditional slideshow presentations, skepticism, and an “us versus them” sentiment between industry incumbents and technology newcomers. What I discovered was a buzzing ecosystem of mission-driven entrepreneurs, carriers and reinsurers seeking opportunities to collaborate with startups, venture capitalists, startup incubators and accelerators­­—and even some insurance regulators recognizing the need to adapt to a changing market environment. Contrary to my initial expectations, this was a community of open-minded optimists and change-makers who shared a common understanding of the need to transform the insurance industry to adapt to growing customer expectations, and a willingness to listen to and learn from each other. It became clear to me that “InsurTech” embodies this interconnected ecosystem in a merger of modern technology with insurance.

The InsurTech ecosystem has gained much attention, as is evident by the real investment dollars in play. In 2016 alone, InsurTech startups raised $1.7 billion across 173 deals globally, with about 60 percent of these deals happening in the United States.1 This reflects an upward trend compared to 2011, when InsurTech startups raised only $140 million across 28 deals.2 Of the hundreds of InsurTech startups that have sprouted up across the globe, the vast majority are not trying to become manufacturers or carriers themselves, but rather they are applying their technology to tackle different elements of the value chain across industry subsectors. By merging modern technology with insurance business models, startups can help insurers accelerate the pace of change in areas such as distribution, customer engagement, product development, operations, claims management and more. So what might we expect to see in the InsurTech space going forward? Here are my thoughts.

Accelerated Evolution Rather Than Revolution

While two or three years ago there was fear around sudden industry disruption and the threat of tech giants overhauling the insurance industry, so far the transformation has been evolutionary rather than revolutionary. Given our highly regulated industry, I expect this trend to continue.

Increased Partnerships

That being said, I believe the (re)insurers that embrace InsurTech partnerships to help accelerate transformation will be well-positioned to survive a major industry disruption. Rather than competing with InsurTech startups,(re)insurers increasingly are warming up to the idea of collaboration to accelerate the pace of change in the industry. As a starting point, digitally native startups can bring modern user experience/user interface (UX/UI) capabilities to help insurers become more customer-centric in their communications and interactions. I expect after insurers modernize the front-end aspects of their businesses, there will be an increased focus on modernizing back-end operations, such as product development, underwriting and pricing, to gain a competitive edge and create truly personalized products and customer experiences.

New Distribution Channels

Modern technology offers the possibility to significantly cut down on time and effort needed to apply for insurance by enabling applicants to get coverage through a few taps on their phone, without ever needing to meet with a human agent. But even beyond direct, digital distribution channels, we are starting to see insurance embedded in other ecosystems. Consider an auto manufacturer that recently announced plans to embed insurance coverage in the price of its cars, thereby eliminating the need for the customer to shop separately for a policy.3 The concept of insurance offered at the point of sale or embedded within noninsurance platforms is one that I expect to continue to gain traction as it enables a more relevant and convenient customer experience.

Focus on Prevention to Drive Customer Engagement

Speaking of customer experience, compared with other industries such as banking, retail and travel, the insurance industry historically has not had much customer interaction outside of acquisition, premium payments and claims. With so few touchpoints along the customer journey, it can be difficult to develop meaningful, long-lasting customer relationships. In the past, insurers may have used fear-based messaging to raise customer awareness about risk events (e.g., death, disease, home/auto damage). Now with the rise of wearable devices, telematics devices and home automation systems, insurers can shift the focus from risk and restitution to prevention, wellness and safety, thereby creating opportunities for more frequent and meaningful customer engagement and relationship-building.

Shift From Use Cases to Business Cases

As (re)insurers seek collaborative opportunities with startups, they tend to look for startups that will help them achieve their strategic objectives. Part of this journey may involve taking an experimental approach, and conducting several pilot projects with different startups tackling different use cases, to test out different technologies and methods before committing to a major investment. Eventually, (re)insurers likely will start to make strategic investments based on insights derived from these pilot projects, and we could start to hear more stories of tangible business impact in the form of cost savings and revenue generation stemming from InsurTech collaboration.

So what does this mean for actuaries? There are many opportunities for actuaries to play a role in accelerating transformation of the industry. Just as technology entrepreneurs and software engineers are driving the “tech” part of InsurTech, actuaries can be the engineers driving the “insur” part—because actuaries understand how the many pieces of the business fundamentally work together. Actuaries with learning mindsets, experimental attitudes and personal drives to be problem-solvers are well-positioned to thrive in the InsurTech space. They only need to seek out the opportunities.

I hope you enjoy this issue of The Actuary, which contains articles and insights from various perspectives of innovators and insiders from the InsurTech/FinTech ecosystem.

Sarah Hinchey, FSA, MAAA, CERA, SCPM, is a manager at Deloitte Consulting LLP in San Jose, California.