Insurtech segment may provide supportive role

The insurance industry continues to be flush with capital and in search of growth.

However, surveys and client experience are raising questions about the industry’s relevance in an era of rapid technological change that threatens to disrupt the traditional value chain, according to Aon’s 2017 Global Insurance Market Opportunities (Gimo) report, which examines key areas of potential growth for insurers.

The report says technology offers insurers tremendous opportunities for value creation.

“In many industries, innovation is synonymous with start-ups that harness technology to create new products and services — and sometimes spark a transformation. Leading companies with scale and resources are generally assumed to be followers, not innovators,” the report says.

“Insurance is sometimes perceived as no different. We have seen the surveys and know from personal experience that questions are being raised about the relevance of large incumbents using technology to unlock value. However, the facts are that existing insurance companies are injecting capital into technology and innovation at a greater relative rate than other sectors. We should expect more experimentation and innovation in the future.”

The report contends that insurance technology — dubbed insurtech — could be an enabler rather than a disruptor of the traditional insurance model and highlights the fact that the fastgrowing entrepreneurial insurtech segment, which has secured about $14bn in investments to date across more than 550 start-ups globally, may have a more supportive role for insurers than previously thought via “open architecture innovation”.

Established organisations play a role in open architecture innovation by collaborating in a framework which has both standards that enable scalable solutions for clients and the flexibility that encourages entrepreneurial innovation.

The report reveals that three of the leading areas where analytics can help with insurance industry growth — cyber risk, casualty catastrophe risk and pathogen risk — could become increasingly insurable through collaborations with insurtech companies, and technology and analytics providers, thereby opening up new opportunities for insurers and reinsurers to provide new and enhanced products.

Meanwhile, the on-demand economy (ODE) is presenting both opportunity and disruption to the traditional insurance sector, through the requirement for a greater range of timebased insurance products that recognise that assets such as cars and homes are increasingly used on both a commercial and personal basis — driven by the increasing utilisation of services such as Uber and Airbnb.

In terms of disruption, the report highlights that US motor pure premiums could decrease by more than 40% of their 2015 levels by 2050 — the point at which autonomous vehicles are expected to be fully adopted.

However, while accident frequency is anticipated to reduce as a result of driverless technology, the study warns that accident severity could increase and that a transfer of liability could occur, from drivers to car manufacturers and software providers.

Paul Mang, Aon’s Global CEO of Analytics, said: “We know the insurance sector is facing challenges in the current macroeconomic environment, so we should expect leading organisations in the industry to drive change. We are already using technology to make us more efficient as a sector, and to expand into emerging risk markets. However, the true transformation will happen as we re-imagine risk management altogether. In this environment, collaborations, or what we call open architecture innovation, will be key to creating net new growth.”

The report reveals that the handling of cyber risk is moving beyond traditional insurance and a typical cyber insurance policy should offer access to a panel of service providers for incident response and additional services. These services will provide insurers with a way to broaden their value proposition beyond the traditional insurance policy.

WE ARE ALREADY USING TECHNOLOGY TO MAKE US MORE EFFICIENT AS A SECTOR, AND EXPAND INTO EMERGING RISK MARKETS