The burst of technological change in the (re)insurance market is gaining serious momentum. Until recently, the sector seemed impervious to the wave of innovation that has pervaded virtually every other industry. But high-tech start-ups entering the (re)insurance market are now impacting the way (re)insurers conduct business as insurance technology (InsurTech) firms’ focus on innovative, efficient and customer-focused solutions resonates at a time of falling profitability.
The potential for change is huge, with InsurTechs looking to reinvent the way products are created, priced and distributed. To do this, they are harnessing cutting-edge innovations such as robotics, artificial intelligence (AI), the internet of things (IoT), big data and predictive modelling. Improving the customer journey and cutting costs are key motivations, with considerable attention so far being focused on distribution and claims handling. Equally as important,some InsurTech firms are also exploring how to leverage existing data and analytics capabilities to provide carriers with more meaningful risk insights and potentially shift the (re)insurance proposition from protection to prevention.
Changing consumer expectations have been an important driver behind the InsurTech boom, with millennials especially, who have grown up with technology at their fingertips, now expecting insurance products to be easily accessible whilst also offering flexibility and value for money. Many carriers have become sensitive to these changing consumer behaviours and the need for modernisation across all components of the value chain. But whilst the (re)insurance sector has access to huge volumes of data and sophisticated modelling technologies, techenabled innovation has been challenged by inflexible legacy IT systems.
Given the scope and potential of InsurTech, talk of disruptive change inevitably dominates the headlines. After all, the wave of InsurTech start-ups has come at a time of increasing pressure on traditional carriers’ margins, making the sector ripe for large-scale disruption, or so goes the argument. But reality points to a different picture, with close collaboration between new and established (re)insurance companies so far proving mutually beneficial.
The vast majority of InsurTech firms are currently focused on supporting incumbents and improving their businesses (rather than supplanting them). A growing number of insurers and reinsurers are today working with InsurTech firms to utilise their innovations and improve performance. Incumbents’ growing recognition of the long-term value of InsurTech is also reflected by the high number of traditional carriers looking to partner with or invest in start-ups as a way of stimulating genuine technological innovation. Indeed, the growth in strategic InsurTech investments by (re)insurers has become a prominent feature in the last year or two.
Access to capital is key if InsurTech firms are to deliver on their promise. More than USD 7 billion of funding has been raised through close to 600 deals since 2012 and strong growth prospects indicate significant amounts will continue to flow into InsurTechs in the near term. Given the highly competitive nature of the InsurTech market, well-constructed strategies around the timing of investments and identifying the best source of funding will maximise start-up firms’ prospects of securing financing. Diligent planning and access to best-in-class intermediary advice will also boost InsurTechs’ valuations and help t establish reputable funding credentials.
JLT Re has established a market-leading position in the InsurTech market. Having pioneered a number of unique funding and risk transfer agreements for InsurTech firms, JLT Re is uniquely placed to support both start-ups and incumbents in facilitating groundbreaking transactions and driving market innovation.
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