Author: ACT News Team
Insuretech is increasing in relevance for the independent agency channel, but it's a broad term and often misunderstood. We turned to George Woods, SVP for global strategic advisory at Guy Carpenter, to find out what aspects of emerging insurance technology are most relevant to our distribution channel and where he expects to see the greatest impact. As carriers look for best-match agencies, insuretech will play an increasingly important role. How can you make it work for you?
ACT NEWS TEAM: Insuretech seems daunting for many independent agents. Why shouldn't it be?
GEORGE WOODS, SVP for Global Strategic Advisory, Guy Carpenter: A lot of people feel insuretech is about the insurance industry being disrupted. Agents—and carriers in some cases—feared that these new tech companies were going to put them out of business. The tech start-up companies felt that the insurance industry was a prime candidate for transformation. These start-ups quickly realized that they possessed cutting-edge technology and capabilities but not the insurance expertise needed to succeed.
It's not as easy to disrupt the insurance industry as they thought initially. There are a lot of regulations and complexities in our industry. It's even more challenging to disrupt than, say, banking, because a lot of that sector's interaction is direct to consumer. With insurance, there isn't that level of direct-to-consumer interaction—though that has changed some on the personal lines side. But when you look at the commercial side, it would be very difficult to replace the agent, who in many cases serves as sort of a risk manager, especially for smaller businesses that don't have an insurance risk management department of their own.
I've been in this space for about seven years. I've seen the tech companies realize the insurance industry has deeper pockets than they do; plus, we have insurance-domain expertise. Instead of trying to disrupt the industry, the insuretechs are now trying to partner with it—both on the distribution [agent] side as well as the carrier side. They are now more focused on taking pieces of the insurance value chain—billing, claims, chatbots—and improving their efficiency.
ACT NEWS: Is there a way for agencies that can't afford an entire digital team to exploit technology to gain a competitive advantage?
GEORGE: Technology continues to rapidly improve, and the cost continues to decrease. I think that trend will continue.
Take legacy systems as an example. Some insuretech companies are focused on making existing legacy systems of insurance carriers more efficient, using software or cloud technology, for example. This option speaks to carriers that are not ready to make a substantial capital investment in a new core system, because they don't want to throw out the huge, 30-year investment they made in their present one.
Other carriers are beginning to invest in the overhaul of their core systems. I've seen that starting—maybe in claims or policy administration now, but at some point in time, they will need to consider replacing other components of their core system. The insuretech companies are listening to the carriers' wants and needs—hopefully the carriers are listening to the agents as to what they need in a new system too.
Agents can be the beneficiaries of carriers' investment in new technology. Hopefully, the new technology will make agents more efficient, improve customer retention, and help agents grow. The carrier has the size and scale to drive this change.
Vendors of agency management systems are playing a role too. Part of the strength the vendors have is that, through their consolidation and acquisition of start-ups, they are acquiring a tremendous amount of information that can be leveraged by carriers and agents alike to make more data-driven decisions. Carriers can look to Vertafore/RiskMatch and IVANS Market Appetite, as examples. Insurers can use the data collected by these companies to identify the best-match agencies—the ones that have customers who match an insurer's risk appetite. On the agent side, if your agency wants to expand into a new niche, you'd be able to identify which carriers do best in the niche you are targeting.
Agency management systems' market segmentation capabilities enable agents to be more efficient in prospecting and better aligned with a carrier's appetite.
ACT NEWS: What are the primary technologies that are having the biggest impact on insurance and other industries?
GEORGE: I met an early-stage start-up in San Diego, and they have experience with blockchain. I'm wondering if blockchain might be the solution for small agency efficiency.
ACT NEWS: And agency staff don't necessarily need to understand how or why blockchain works. They just need to know how to use the program to reap the benefits.
GEORGE: I agree with you. In addition to blockchain, let's take a look at mobile platforms. What if an agent could use his phone or iPad to give a client a quote and bind coverage on the spot? Most consumers are transacting business through their phones. Why aren't we? Of course, agents have to be able to tie in to their carrier partners' platform, so getting the carriers on board with any mobile service offering is crucial. The agents can put pressure on the carrier to make that happen.
I see insuretech having its greatest impact on distribution, especially in the MGA sector. A number of these start-up MGAs leverage their technology to more accurately model, price and underwrite risks.
Insuretech is also already having an impact on claims, as many carriers are leveraging drone technology to improve their claims adjustment process. Also, more and more artificial intelligence (AI) companies are popping up with natural language processing expertise. More insurers are exploring integrating AI into their claims and customer service processes.
A couple of visual intelligence start-ups I'm familiar with capture overhead images to register roof construction, moisture buildup, vegetation, etc. I recently met with start-ups founded by former Department of Defense employees who are entering the insuretech industry with their digital imagery and machine learning knowledge. Their technology will streamline the underwriting and claims process as well as track catastrophic events like wildfires in real time. So there are opportunities to improve many facets of our industry through innovation.
ACT NEWS: What do you see as the critical differences between insuretech, accelerators and incubators?
GEORGE: Let's break that down.
Insuretech refers to the use of technology innovations to squeeze efficiencies out from the current insurance industry model. Lemonade and Slice are examples of insuretech companies that are disrupting the insurance carrier model, but, at the end of the day, they're still underwriting and distributing insurance.
Accelerators focusing on insuretech are increasingly popping up, and existing ones are also creating insurance-themed programs. They offer mentorship, educational components, and potential funding for the start-ups. The accelerator members—comprised typically of carriers, private equity firms, venture capitalists, and big brokerages—listen to pitches from each of the start-ups in a “batch," or group. Based on the best pitches, the members will choose a select group to continue at the accelerator. These remaining start-ups are given a work space in the accelerator's facility, where they can continue to develop their technological product or solution over the course of approximately 100 days. During this time, they will also have one-on-one meetings with carriers and other mentors. These sessions help start-ups develop a viable insurance product or service.
An incubator is a combination of business development processes, infrastructure and people designed to help create and grow new businesses by providing financial and technical services, office space, training, etc. The company monetizes the investment by keeping a stake in the start-up. Carriers like Allianz, Munich Re and MetLife all have incubators, for example.
ACT NEWS: That sounds like a lot of investment capital. Where do you see the trend going?
GEORGE: It's reminiscent of the 1990s dot-com bubble. Billions of dollars are being invested in insuretech start-ups. The brisk rise in investments is increasing the valuations of these companies, which have little to no earnings. For all the money that's being invested, the private equity and insurance carriers with stakes in these tech companies can expect little to no return on their investment, since most start-ups fail. I do think that companies are getting wiser about what they invest in. They are starting to say, “Before I put money in this tech firm, I should figure out what problem I am trying to solve. Then, I can focus on start-ups that have a possible solution and partner with them to build it." The agents have a great opportunity to give carriers input on what tools they need and would like to see. Agents' feedback can drive carrier investment and insuretech development. Use this opening to your advantage if you are an agent or agency that wants to benefit from emerging insurance technology.
The views expressed herein are solely those of the author and do not reflect the views of Guy Carpenter & Company, LLC, its officers, managers, or employees.