12.02.2018 Views

quarterly-insurtech-briefing-q4-2017

You also want an ePaper? Increase the reach of your titles

YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.

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

Hooray! Your file is uploaded and ready to be published.

Saved successfully!

Ooh no, something went wrong!