InsurTech seeks to improve upon traditional insurance processes by making use of technology like artificial intelligence (AI), mobile applications, and cloud computing. In this article, Milliman’s Tom Ryan takes a look at the InsurTech environment within the property and casualty (P&C) industry. The following excerpt highlights the dynamics stirring up interest in the industry.
The current interest in InsurTech is driven by a perfect alignment of four key elements, the “big Ts”—technology, talent, treasure, and a tempting target.
• Technology: Many of the ideas behind InsurTech startups are not new. It’s just that they were not feasible previously because of shortcomings in technology—even for the technology available as recently as four to five years ago. The improvements in faster, cheaper, smarter computing power, greater storage capability, and large blocks of external but “usable” big data have allowed many seasoned ideas to come to fruition.
• Talent: Many of the entrepreneurs behind today’s InsurTech initiatives migrated to insurance from other industries where they successfully implemented technological innovation. As these other industries get more crowded and mature, innovators are bringing their playbooks to more wide open spaces—the insurance industry. Visit the websites or read the backstories of many InsurTech startups and you will likely find references to prior successes in FinTech or at least a Stanford or MIT pedigree.
• Treasure: At the end of 2016, policyholder surplus in the U.S. property and casualty (P&C) industry stood near record highs of $700 billion. According to the Insurance Information Institute, the industry now has $1 of surplus for every 77 cents of net written premium, close to the strongest claim-paying status in its history. While this is good news from an insurer solvency perspective, the abundance of surplus relative to premium is driving a sustained soft market with low return on equity. Many insurers are responding to these conditions by merging with or acquiring competitors, buying stock back, or raising distributed dividends. It has proved difficult to put any excess capital to work directly in company operations. This had led several insurers to invest in internal technology and digital innovation initiatives as well as starting their own corporate venture capital funds to invest in InsurTech startups. More and more of the investors in InsurTech ventures are the investment arms of legacy insurers and reinsurers. Because of the lack of attractive standard alternatives, these investments may be the best options.
• Tempting target: The insurance industry is huge, with over a trillion dollars of net premiums written annually—over $500 billion in the P&C industry alone. Couple the size of the industry with a reputation for risk aversion and conservatism, and you have a tempting target for innovators, disruptors, and entrepreneurs.