quarterly-insurtech-briefing-q4-2017
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Thought Leadership<br />
<strong>2017</strong>: A Year of Transition for InsurTech Focus<br />
James Kent (JK)<br />
Global Chief Executive Officer,<br />
Willis Re<br />
Alice Underwood (AU)<br />
Global Head of Insurance<br />
Consulting and Technology,<br />
Willis Towers Watson<br />
As Willis Re reviews the last 12 months of commercial and<br />
academic activity in the InsurTech world, one trend clearly<br />
emerged; the number of InsurTechs focusing their attention<br />
on back-end processes is growing faster relative to that of<br />
new ventures focused purely on front-end services.<br />
At the beginning of <strong>2017</strong>, we estimate that approximately<br />
85% of InsurTechs globally focused the majority of their<br />
attention and technological implementation on front-end<br />
processes; customer acquisition, marketing and user<br />
experience in distribution and analyzing economic changes<br />
and new sources of available data for incorporation into<br />
product development. In the North American and European<br />
markets in particular, many InsurTechs which focused their<br />
attention on building full-stack insurer infrastructure and<br />
capabilities to support innovations in these areas of the<br />
market have found that the barriers to entry are simply<br />
too difficult to surmount. Notably, the tasks of navigating<br />
regulation, financing and cultural adoption have proved to<br />
be simply too prohibitive.<br />
In 2016, a significant number of InsurTechs concentrated<br />
their efforts into becoming full-stack end-to-end digital<br />
insurers. At the end of the first quarter of <strong>2017</strong>, however,<br />
we noted a decrease in InsurTechs focusing their business<br />
models towards this area relative to those who began<br />
focusing on digital distribution strategies and facilitation of<br />
agent/broker disruption. Though this model has achieved<br />
some degree of success, particularly within underserved<br />
markets where distribution costs have traditionally been<br />
cost ineffective for incumbents, costs of acquisition and<br />
cultural adoption have proven extremely challenging for<br />
new entrants. We do note however, that incumbents have<br />
made a number of notable acquisitions and licensing<br />
agreements for digital broking software in <strong>2017</strong>.<br />
Fast-forward another 10 months and we are observing<br />
another notable change, as InsurTechs are grappling with<br />
determining whether the cost effectiveness of attempting<br />
to disrupt the (re)insurance industry head on represents<br />
the most effective way to utilize the innovative technologies<br />
and applications they have developed. Furthermore,<br />
in cases where InsurTechs have collaborated with<br />
incumbents seeking to leverage their front-end services,<br />
most (re)insurers have realized a relatively small degree of<br />
genuine improvement and financial returns; whether that is<br />
in the form of growth in new business lines or fortification<br />
of their existing portfolios.<br />
Some real gains have been achieved in areas where<br />
new technologies and applications have been employed<br />
in middle and back-end processes within existing<br />
software systems, or (re)insurance company operational<br />
infrastructure. For example, InsurTechs have added<br />
value to incumbents in pricing and underwriting, claims<br />
handling and administration, fraud detection, predictive<br />
analytics and through implementation of and integration<br />
with improved software systems which have become<br />
more adept at extracting data to enable quicker and more<br />
informed decision-making leveraging artificial intelligence<br />
and machine learning.<br />
Industry sources estimate that the number of InsurTechs<br />
globally increased by approximately 25% in <strong>2017</strong> (a) . Of the<br />
complete universe today, approximately 57% of InsurTechs<br />
continue to focus on front-end services, with 43% now<br />
primarily focused on back-end solutions. The decline in<br />
InsurTechs focused on front-end services resulted from<br />
a combination of established businesses transitioning<br />
towards more practical insurance applications, and<br />
an influx of back-end focused new entrants attracting<br />
investments in <strong>2017</strong>.<br />
(a) Source: Innovator’s Edge research.<br />
Quarterly InsurTech Briefing Q4 <strong>2017</strong> 46