Big insurance companies aren’t known for their nimbleness. Many of the largest global insurers have been around for more than a century, and their time-tested business models and operating processes have changed very little. They are like supertankers; for them to change directions takes a long time.
Technology, not surprisingly, has been put forward as a means for global insurers to become more innovative and efficient, and they have spent billions building technology systems over the last two decades aimed at doing just that. Few have realized any significant productivity gains, however.
“Most industries, such as automotive and technology, have seen constant productivity improvements over the last decade. Insurance has not,” says Simon Kaesler, a partner in McKinsey’s Frankfurt office. “Digital technologies improved some things, but it was not a game-changer for the industry.”
The game, however, may be about to change, with artificial intelligence as the catalyst. With hundreds of innovative Insurtech companies now focused on bringing AI functionalities to insurance business processes, the industry appears poised for an accelerated transformation.
“We are entering a crucial new phase at Nationwide,” says Melanie Kolp, CTO of Technology Strategy, Data & Innovation at the 99-year-old multi-line insurer based in Columbus, Ohio. “We’re shifting from technology-led experimentation to business-led transformation. This evolution is an opportunity to reimagine what our end-to-end businesses could look like with the power of AI.”
At least in theory, AI has a good deal to offer the insurance industry. Large language models and generative AI can analyze vast amounts of proprietary and external data to more rapidly and accurately assess underwriting risks, spot fraudulent claims, and quickly settle legitimate ones. These tools can help automate billing processes and improve the customer experience by responding rapidly and intelligently to inquiries.
“Insurance is a contract-based industry with lots of unstructured data and unstructured processes,” Kaesler notes. “AI works really well in that environment.”
The cost-saving opportunities for incumbent insurers are potentially massive as well, he adds: “We could see productivity improvements of 30% to 40%. Companies could service 30% to 40% more policies with the same number of people.”
The challenge is integrating sophisticated new tools like AI and machine learning with insurers’ legacy systems and processes without hurting customer service and loyalty. Depending on the insurer and the tech stacks in place, this can be difficult.
“We have a large technology estate that has to be integrated with Insurtech, and it has to be able to scale and sit within our control and security framework,” says Scott Case, chief technology & operations officer at Prudential Financial. “Whether it’s new or old technology, you have to be astute about how it integrates with your business processes.”
Prudential is always monitoring the market for new tech tools, including third-party AI solutions that can help its employees and agents make faster, better decisions. Despite the failed acquisition in 2019 of Assurance IQ, an Insurtech that matches consumers with insurance policies, Prudential continues to partner with outside firms for technology solutions and distribution deals. Last year, it struck a deal with digital insurer 123Seguro to distribute insurance products in underinsured Latin American markets over the firm’s platform.
For Case, the potential cost savings is not what’s driving Prudential’s adoption of new technology.
“This is about the art of the possible and serving customers the way they want to be served,” he says. “As we scale these solutions, many will bring cost savings, but the key is staying abreast of customer needs and serving them better.”
While integrating new technologies into legacy systems is a challenge for all insurers, it can be done, says Arun Prasad, a US principal at Deloitte focused on insurance, often with the help of Insurtech companies that bring their AI tools and talent to the table.
“The APIs are more robust now, enabling the integration of new technologies into legacy cores more easily,” he observes. “It makes it easier to partner with others and achieve ROI goals.”
Prasad credits Insurtech firms with pivoting their business models and helping incumbent insurers address friction points in their operations, whether in the underwriting process, claims management, billing, or customer engagement.
“The momentum is picking up,” he says. “Insurtech firms are playing a sizable role in reshaping the industry and are starting to have a very positive impact on the insurance marketplace.”
Pioneers And Partners
Prasad divides Insurtech into two buckets: those focused on their own growth in the insurance market, and those focused on improving the operations and processes of existing carriers. On the first front, Insurtech firms have barely made a ripple in the roughly $8 trillion CHK global insurance market, accounting for about 1% of global written premiums. There are, however, plenty of standouts.
Zhong An, an online-only insurer that launched in 2013 and went public in 2017, has many millions of customers in China. The company is now partnering with Sompo Japan Nipponkoa to expand into Japan, providing IT expertise while benefiting from Sompo’s presence in the market. New York-based Lemonade Inc. had 2.4 million customers at the end of the first quarter and surpassed $1 billion of in-force premiums. German insurance giant Allianz made a strategic investment in the company in 2017.
Globally, several firms are having notable success. Alan, a French Insurtech that sells health insurance to corporate clients and arranges health care services for their employees, has a valuation of over $4 billion based on its last round of private funding. It now covers 745,000 customers and has expanded into Belgium, Spain, and most recently, Canada.
“The addressable market globally is massive; just in the geographies Alan is currently present there are 120 million insured members, which allows ample opportunity to continue growing at minimum 40% growth rates in the future,” says Alan CFO Mihaela Albu. “We’ve proven that we can scale across different markets in Europe and now we are going global.” The company has targeted profitability by the end of next year.
“AI has been in our fiber since the beginning,” Albu says. “One hundred percent of our employees are using it across operations on a weekly basis,” and it helps the company to settle 98% of customer claims within 24 hours; the other 2% are flagged as fraudulent.
Palo Alto, California-based Next Insurance, which focuses on commercial insurance for the small business market, has also been growing rapidly. It has over 600,000 business customers and is poised to ramp up growth following its acquisition by Munich Re in March for $2.6 billion.
“The merger gives us long-term stability and the level of technical, risk management, and infrastructure capabilities of a powerful insurance network,” says Chris Rhodes, chief insurance officer at Next, who formerly worked at Farmers Insurance and MetLife. “It has amplified our ambitions for the next phase of growth.”
The acquisition of Next could also help Munich Re implement AI tools across its operations, pointing to how the increasing collaboration between innovative Insurtech firms and dominant incumbent insurers could herald a deeper transformation of the industry. If existing insurers can scale Insurtech digital technologies to their business models, benefits for companies and customers could follow.
“There is some really cool stuff happening in the insurance industry now,” says James Ruotolo, senior director of Financial Services at software firm SAS. “Some of the innovation is happening directly within insurers, and in other cases, they’re collaborating with some of the newer Insurtech providers.”
As a godfather of data analytics software, SAS, founded nearly 50 years ago, counts 47 of the 50 largest global insurers as customers. Ruotolo helps insurers identify technology solutions for business problems and integrate them into legacy systems. Like all analysts in the industry, he is watching closely how the Munich Re/Next merger plays out.
“I think we may see an uptick in acquisitions,” he observes. “As these technologies gain a foothold and start to show real value in the market, some insurers will be eager to snap them up.”
Insurers are sounding nimbler already.
