For the insurance industry, 2018 was about making space for new technology, new players, and new partnerships. There is much to come in the year ahead.

This year, insurtech became a theme of great importance at Aluance Digital. We’ve observed the space with growing interest, studied the opportunities it presents, and discussed it with thought leaders at industry events in Canada, Europe and the United States.

As 2018 draws to a close, we look back on the insurtech observations that we’ve written about in our Acuity blog, while sharing thoughts how digital will continue to reshape the insurance industry in 2019.

Collaboration and Investment

For a long time, the insurance industry has been challenged by the need for traditional incumbents and new entrants to come together in productive collaboration. 2018 witnessed a string of such partnerships: Co-operators and Slice launching duuo, a pay-per-use homesharing product; CoverWallet opening its commercial insurance platform to insurance agencies; and Lemonade inviting others to help shorten policy length through an open-source collaboration.

With 96 percent of insurers expressing interest in partnering with insurtechs, according to an October report from Capgemini, the trend of working together will continue in 2019. Combining incumbents’ customer base and large datasets with startups’ tech innovation will improve customer experience and back office efficiency.

“It’s clear that insurers and InsurTechs see collaboration as the key to success in the evolving industry ecosystem, with re-imagined customer experience at its heart. Finding the right chemistry between collaborators to create a sustainable, agile position in the industry is the key to determining who will be future industry leaders.”
— Anirban Bose, CEO, Capgemini Financial Services Strategic Business Unit

Investors are betting on such efficiencies, putting more capital to work in the space. With $2.6 billion of funds raised across 204 deals globally through November, according to Hampleton Partners, 2018 may be on track to set a new record. Investment in Insurtech last peaked in 2015 at $2.7 billion.

The industry could still face disruption from tech giants like Amazon and Google who have access to a large customer base and a wealth of data. Amazon has already partnered with Travelers to bundle insurance with smart home product purchases, and Google’s parent Alphabet invested in Applied Systems, an insurance SaaS, with an eye out for other opportunities in insurtech.

Chris Downer of XL Innovate believes that while large tech companies may disrupt personal lines, “for the time being, when it comes to commercial insurance, Amazon and Google are firmly on the outside looking in.” Tech giants may shy away from commercial’s complexity, but entrepreneurs in the gig economy are a growing segment of the workforce and they need specialized insurance. With most insurtechs focused on personal insurance so far, there is plenty of opportunity for growth in commercial insurance in 2019.

Data, Automation and Insight

UK mathematician Clive Humby is widely credited with coining the phrase “data is the new oil” back in 2006. While 2018 produced some debate over the validity of this analogy, everyone agrees that data-driven technologies, like analytics, automation and artificial intelligence, are fundamentally transforming how we live, work and insure against risk.

IoT sensors in wearables, connected home devices and car telematics are spitting out massive amounts of information, but insurers are not yet using data to its full potential for improving customer experience, analyzing risk, and shifting behaviours to avoid exposure.

“It’s clear insurers need to adapt to this changing market. They will need to harness predictive analytics to become customer centric at levels previously unseen.”
— Udi Ziv, CEO, Earnix

2019 will maintain the trend of gathering data and finding more ways to dive more deeply into it to gather actionable insight. New machine learning models and artificial intelligence will aid decision-making.

One area that is ripe for data-driven transformation is claims automation, where an estimated $11 billion dollars a year could be saved in the healthcare industry alone. The use of automation across all areas of the insurance value chain will multiply efficiencies.

Volume is not the only aspect of data that is growing – so is its variety. According to International Data Corporation, by 2020, organizations using both structured and unstructured data will gain an extra $430 billion in productivity over their competitors who are using only structured data or no data at all in their decision-making. Advanced analytics and machine learning will help insurers make the most of this complex data.

The changing shape of the workforce is another area where data-driven technologies can help. Younger workers’ career expectations in the insurance industry differ from past generations, who favoured stable long term employment. Millennials and GenZ are instead trending towards favouring contract work in a gig economy. As more experienced insurance workers hit retirement age, conversational bot-style automation is expected to help companies cope.

Blockchain and Smart Contracts Still on the Horizon

Distributed ledger technology saw progress in 2018, with companies like Buzzvault and Black Insurance adopting blockchain in their business models.

The growing Riskblock Alliance continues to develop a blockchain platform for insurers to build on, starting with a proof of insurance app and moving on to other use cases such as claims, subrogation, parametric insurance, and a mortality monitor for life insurance. Meanwhile, B3i is exploring distributed ledger technology for reinsurance. The two organizations partnered in November to establish standards for the entire insurance industry.

Despite the interest, blockchain technology is largely still in its infancy for insurance applications.

“2019 will likely see the industry move past basic education and proofs of concept to preparing for the launch of an increasing number of real-world blockchain applications impacting day-to-day operations… large carriers and consortiums are expected to launch more impactful blockchain initiatives that could change the shape of insurance operations.”
— Deloitte 2019 Insurance Industry Outlook

Parametric insurance shows promise as a model for driving market penetration in fast-growing developing economies in Latin America, Asia and Africa. The combined power of smart contracts and parametric insurance can improve efficiency and enable low-cost microinsurance in underinsured regions of the world. This is an urgent need, with Lloyd’s and the Centre for Economics and Business Research estimating a $163 billion insurance gap across the globe putting vulnerable populations at risk.

Risk Landscape is Morphing

Climate change continues to loom large on the world, delivering mounting losses for property and casualty insurers while rendering past statistics on disaster frequency obsolete. The first half of 2018 fared better than hurricane-tossed 2017, but losses from California’s November wildfires could surpass $19 billion. The disaster has already forced hundred-plus-year-old insurer Merced Property and Casualty Corp into bankruptcy.

Meanwhile, the tidal wave of digital adoption has given rise to new risks for which neither businesses nor individuals are adequately covered.

“Cyber insurance has yet to live up to expectations of being perhaps the biggest organic growth opportunity for property-casualty insurers,” says Deloitte. “Global premiums are estimated by various sources to have only risen to between $3.5 billion and $4 billion, meaning cyber remains a niche market that has yet to mature for sellers and buyers alike.”

This is despite ransomware hitting the healthcare industry and others hard in 2017. With the increasing use of technologies like telehealth and artificial intelligence in healthcare, the need for cyber protection will continue to grow.

Regulations like Europe’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) are increasing financial penalties for organizations who compromise consumer privacy in an increasingly data-rich environment. This means cyber liability insurance continues to be an underserved need going into 2019. With the growing use of data to analyze complex risk, making cyber insurance easier to price is a compelling opportunity.

Looking Ahead to 2019

Overall, 2019 will see a continuing trend of data usage and automation with IoT devices generating a wealth of real-time information. Cybersecurity and parametric insurance products will become more prevalent. Distributed ledger technology will mature and enable wider experimentation with smart contracts in insurance.

Incumbents and insurtech startups will continue to work together for digital transformation. This collaboration will produce a range of new products, which in turn will drive the need for greater innovation in distribution. Agencies will rethink the customer experience they deliver, and consider how new customer touchpoints and automation can be combined to grow sales and reduce costs.

Risks are increasing from climate change, an aging population’s demands on healthcare is pressing the need for cost reduction, and the gig economy and mobility lifestyles are reshaping consumers’ relationship with insurance. What 2019 is sure to bring is the continued evolution of the insurance industry and growing opportunities in insurtech.

“The reality is that winners in the race to become the insurers of the future will likely be those who understand how to change in the way that best suits their particular company and business to create competitive advantage in this new world. And to do that, organizations should change how they think about and execute change.”
— Deloitte 2019 Insurance Industry Outlook.