View this article online: https://www.insurancejournal.com/news/international/2017/09/12/463959.htm

Insurtech Firms Often Help, Not Disrupt, Traditional Reinsurers: JLT Re

A wave of insurtech startups are entering the re/insurance market – but that’s not necessarily a disruptive trend, according to a report published by JLT Re.

Indeed, the report points to close collaboration between many new insurtech companies and established re/insurance companies as being, so far, mutually beneficial.

“The vast majority of insurtech firms are currently focused on supporting incumbents and improving their businesses, rather than supplanting them,” said the JLT Re Viewpoint report titled “Insurtech: Rebooting (Re)insurance,” which was launched at JLT Re’s press briefing held at this week’s Reinsurance Rendez-Vous in Monte Carlo.

“A growing number of insurers and reinsurers are today working with insurtech firms to utilize their innovations and improve performance,” the report said, noting that a high number of traditional carriers are looking to partner with or invest in startups to stimulate technological innovation and assure long-term profitability.

“The potential for change is huge, with insurtechs looking to reinvent the way products are created, priced and distributed,” said Mike Reynolds, global CEO, JLT Re, in a statement.

“To do this, they are harnessing cutting-edge innovations such as robotics, artificial intelligence, the internet of things, big data and predictive modeling,” he added.

Some of these technologies have been predominantly employed in commoditized personal lines but their use “is growing in more complex segments such as commercial insurance and reinsurance,” JLT Re explained in the report. “As a result, tech-led innovations are now starting to be deployed in specialized classes of business such as commercial auto, commercial property, workers’ compensation and cyber to name a few.”

“Improving the customer journey and cutting costs are key motivations, with considerable attention so far being focused on distribution and claims handling. Equally as important, some insurtech firms are also exploring how to leverage existing data and analytics capabilities to provide carriers with more meaningful risk insights and potentially shift the re/insurance proposition from protection to prevention,” Reynolds went on to say.

The report also found re/insurers that successfully harness new technologies are likely to be rewarded with new growth opportunities and operational efficiencies across the value chain.

These areas include:

• Product development. Insurtech creates opportunities to increase demand for re/insurance by creating new pools of business, which address needs largely unmet by standard covers. This increases the re/insurance pie, the report said, citing examples such as: 1) solutions to close protection gaps in mature and emerging markets, 2) leveraging internet and social media channels to form communities of individual risks with specialized requirements, 3) using a web of connected devices to provide tailored solutions such as usage-based or pay-as-you-go insurance.
• Marketing/customer interaction. New technologies can help carriers overcome difficulties they may have with customer engagement. The report cited the example of usage-based insurance, which creates enhanced interaction by highlighting the way behavioral changes can positively affect customers’ lives (via better health and lower premiums).
• Insurtech companies offer traditional re/insurers the opportunity “to leverage real-time and ubiquitous data originating from various high-tech sources, such as telematics and IoT devices,” which can enhance risk assessment and pricing capabilities, the report continued.
• Much insurtech activity has been focused on distribution channels. For example, in emerging markets, insurtech companies have helped make products accessible by providing smartphone solutions for customers. Other areas have involved simplification of the buying process and facilitating product comparisons, designed to improve the customer experience, the report added.
• “By leveraging AI and machine learning technologies,” the report said, the claims handling process is “benefiting from falling costs and reducing processing time while enabling earlier and more effective detection of fraudulent claims.” It noted that some carriers are examining the potential use of blockchain and distributed ledger technologies (DLT) in claims, given the potential benefits provided by “data sharing, transparency, fraud prevention and record keeping.”

“With re/insurers’ profitability being squeezed by higher underlying loss ratios and increased expenses, some firms are now struggling to generate returns above their cost of capital,” said David Flandro, global head of Analytics, JLT Re said.

“New technologies, and the innovations provided by insurtech companies, in particular, are therefore moving front and center of incumbent carriers’ minds as they explore opportunities to gain competitive advantages,” he added.

While some people may warn that insurtech brings the risk of disruption, Flandro said, the business models of these businesses should not necessarily be viewed as disruptive.

“The vast majority of insurtech firms are currently focused on supporting [reinsurance] incumbents and improving their businesses,” Flandro went on to say.

Source: JLT Re