Why the rise of insurtech should matter to actuaries

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We define insurtech as the use of emerging hardware, software and user interfaces to address inefficiencies or opportunities in the insurance value chain. Further, we think of the intersection of two dimensions as the focus of our discussion: industry specificity solutions and more recently established market players or solutions.  

Annual insurtech startup funding volumes have grown substantially since 2015. Global funding broke the $2.5 billion mark in 2015, up from an average of approximately a half- billion over the prior three years. Insurtech startup funding continued strong reaching a record $7 billion in 2020 despite the pandemic and exceeded $15 billion in 2021. But what's causing this rapid growth in insurtech? Various factors are contributing to growth: customer, distribution, regulation and technology.

Customer experience 
Consumers are becoming pickier. They want faster service and they want the applications and claims processes to be streamlined. With the goal of improving customer experience many insurers are forecasting a continuing shift from traditional distribution channels to digital and direct distribution. 

Another trend is around more customer-centric products. Some companies are developing simpler ways for consumers to have all their insurance in one place.  Surround Insurance, for example, is a startup MGA that provides subscription insurance for city dwellers that cover common needs – renting, driving, biking, freelancing and more. Blink, backed by century-old insurer Chubb, is focused on customizable coverage options and plans to provide a list of protection options which can be both P&C and Life and Health so customers can pick and choose what matters to them without trying to buy separate policies.

Many carriers provide additional services free or at a discount to their customers to further strengthen their brand providing value outside traditional insurance services.

Distribution
There is also a direct-to-consumer approach that includes digitalization. Insurtech not only helps with the shift to digital and direct channels, but also provides ways traditional distribution channels can compete in a digital customer experience. Zelros, for example, is a startup that brings AI-powered digital platforms to insurers and agents. It recently came up with a standard that documents model performance over sub-populations, providing transparency on how AI models are performing over populations that are more vulnerable to potential bias.

Anti-rebate laws 
Anti-rebate regulation laws introduced by U.S. regulators is a potential barrier to insurtech that focuses on additional benefits to customers beyond what a typical insurance policy covers. Many states have considered exceptions in order to strike the right balance between protecting consumers and fostering innovation. Many regulators are willing to interact and have open conversations with the industry such as the insurtech: Bridge the Gap event hosted by Plug and Play to connect regulators with insurtech startups and corporate partners. In addition, the NAIC also created an innovation and technology task force to discuss and explore the implications of insurtech on regulations.

Technology advancement fuels insurtech growth
Legacy systems and IT challenges are entrenched in most companies making them the biggest barriers to innovation. As the cost of technology lessens and the benefits of adopting new technology become more apparent through other successful adopters, striking a balance between benefit and cost becomes an easier decision.

While a full system transition can be enormous, expensive and disruptive, there are companies that provide application programming interfaces for integration between legacy systems and modern solutions, which can serve as a stepping stone to automation. 

Opportunities within insurtech
Insurtech can play a role in several areas along the insurance value chain including underwriting; quote, bind and issue; policy administration; claims and settlement. With many opportunities for actuaries to be involved.

Startups are not the only ones in the ecosystem, large carriers and entrenched players are also part of the insurtech space by choosing to focus on innovation and in some cases creating innovation labs within their companies. Though the insurtech industry focuses on innovation and disruption that does not always mean competition with many insurtech solutions focusing on ways to partner with insurance incumbents by providing relevant technology and the ease of adoption. 

Additionally, the insurtech landscape is geographically diverse. Silicon Valley is not the only place with startups and innovation – we see startups and incubators/accelerators flourishing all over the U.S. and in different countries. 

The Actuary's role in insurtech
Insurtech adds value across a broad spectrum of the insurance industry. Actuaries, as broad insurance experts and quantifiers of risk, can add value to many of these spaces. There used to be a narrow view of actuaries' expertise—that they were only needed if issuing a product or setting reserves. As insurtech disrupts the current insurance industry, companies need to leverage actuaries' strong skill set and broader insurance knowledge base to innovate and integrate new ideas.

Actuaries are the bridge between insurtech and the insurance industry. They have a subject matter expertise, a broad business expertise which is applicable to many roles and they understand and can quantify the risks. In the next five to 10 years, we need to think about what kind of training actuaries need in order to be critical players in insurtech and in the insurance industry.

There is no doubt that we are seeing a change in the insurance industry, being driven in large part by the new types of solutions that insurtech is creating. The need for technology as well as actuaries that can use and understand that technology for implementing analytics, is imperative. Indeed, actuaries' broad business acumen allows them to serve effectively in technical and non-technical roles. Insurtech's influence on the insurance industry will only continue to grow.  Actuaries who embrace these changes can be the bridge between insurtech and traditional insurance, providing more effective contributions to insurtech innovation.

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Insurtech Digital Transformation Risk analysis Insurance technology Customer experience
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