Autumn started with a rush of deals. As August turned to September, a clutch of big insurers announced investments in start-ups. Allianz put funds into MoneyFarm, a digital wealth manager. Munich Re partnered with Trov, which is developing a range of on-demand insurance products. Axa backed Gasolead, which is creating a virtual assistant to help insurance agents generate more digital leads.
If this is an industry playing catch-up on tech, it is playing hard. “[Insurers] are working closely with start-ups rather than seeing them as a threat,” says Nigel Walsh, a partner at Deloitte.
For others, however, there is a long way to go. Tom Butterworth of Silicon Valley Bank, which finances tech companies, describes the sector as archaic. “It’s seen as the laggard in adopting new technology,” he says.
The September deals showed the breadth of technologies in which insurers are dabbling as they look for new ways to help customers — both retail and corporate — manage risk.
Telematics is particularly popular. What started as the ability to assess how well young people drive via a black box in the car is quickly expanding into a range of similar ideas. Health insurance linked to fitness devices is one. Home or factory insurance policies linked to various types of sensor are another.
Data analysis is a hot topic. “The insurers are probably a bit more mature than the banks in using big data to drive value,” says Roy Jubraj, managing director at Accenture. The idea is that, by analysing data, insurers can assess risk more accurately. This is not always straightforward. UK regulators recently looked at whether insurers’ use of data could harm consumers, although it eventually decided that the issue did not merit a full investigation.
Meanwhile, blockchain, the technology behind bitcoin, is never far from the discussion. Insurers are investigating how it could make insurance contracts cheaper and more secure. “Blockchain has the opportunity to fundamentally change the way we interact with insurers,” says Mr Walsh. He adds that smart contracts — which pay out automatically if something happens, without the policyholder needing to make a claim — are one way in which the technology could change the industry.
Links between traditional insurers and new players are critical for both
Yet there are limits to how far big, traditional insurers can go when it comes to making the most of new developments. “Legacy systems are holding them back quite a bit,” says Mr Jubraj. “That’s why major players are embarking on new platforms, modernising what they have.”
Old technology, says Mr Jubraj, hinders insurers’ ability to create new products quickly. “Today most insurers push digital services based on the products they are [already] selling. Not many are looking at you as a customer and driving a proposition around that, as Amazon has in retail,” he adds.
That is where a lot of the start-ups come in. New entrants are selling variations on traditional policies — car insurance by the mile, for example, or cover for specific possessions. By combining with these start-ups, insurers win some underwriting business (very few start-ups are fully licensed insurers) and get an early peek at which sorts of products might work well.
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“For the foreseeable future, barriers to entry are so huge that you’ll see this layer added to the top of the industry,” says Mr Butterworth. “It is the [insurers] most willing to integrate with the early-stage companies that will come out on top.”
Cyber insurance is one exception. Multinationals including AIG, Munich Re, Allianz and Beazley have pushed into cyber. Analysts say it is one of the few areas of commercial and wholesale insurance that offers much growth. Adoption is much higher in the US than Europe, but EU rules coming in 2018 are expected to boost take-up.
However, customer demands are changing in cyber. While cyber policies traditionally cover companies for financial and operational problems caused by data loss, industry surveys suggest that policyholders have a wider range of worries, such as what happens if a cyber attack causes physical damage, or the consequences of a hack that affects products. The question for insurers is how quickly they can model and price those risks.