
Catch the Wave
- With $4.6 Trillion in global annual premiums, or 5.6% of global GDP, the insurance industry is a highly attractive market where incumbents have been slow to embrace innovation
- There are three competitive threats at work in the insurance market and they all point to Technology Disruption: (1) an explosion of well funded, InsurTech startups; (2) the feared entry of the B2C tech “titans” (i.e. Google, Amazon, Facebook, etc.); and (3) incumbents racing to adopt modern enabling technologies
- Investors can sense the opportunity: InsurTech investments are up six-fold over the last five years across at all stages of funding
- Whereas this first wave has primarily focused on distribution, a second wave is taking aim at how insurance products are designed, priced, and operated
- Incumbents’ initial reaction has been to partner and invest mostly in enabling technology
- These market forces point to increased M&A activity as customer demand will make InsurTech solutions key to an insurer’s customer acquisition and retention strategy

Investment in Technology Pays Dividends
- According to McKinsey, there is a clear relationship between higher technology spend and financial outperformance by insurance companies over the years
- The top quartile insurance companies as measured by technology spend have outgrown their lower spending peers by 1.8x
- Tech-heavy insurers have grown revenues at an average annual rate of 6.2% as compared to 3.4% for the rest of the industry
- In a separate study, the insurance workforce is projected to shrink by up to 25% over the next 10 years driven by these same technology driven investments and the automation of manual processes
- The most significant headcount reductions are expected to occur in general administration and operations
- The potential for dramatic improvement in both top-line and bottom-line results is becoming too compelling for major players to ignore; insurers either up their tech budgets or get run over by peers and new entrants

Incumbents Hesitant to Adopt, Despite Benefits
- Despite the compelling case to be made for increased tech adoption, incumbent insurers have been hesitant to broadly adopt new technology, due to:
- A greater dependency on legacy systems to manage highly sensitive proprietary data and regulatory compliance issues
- Switching costs can be very high and very time consuming
- In addition, a first mover “game of chicken” is playing out across the insurance sector
- Across multiple technology applications, only one-third of insurers surveyed say they see the advantages of being a first mover
- Most are content to “wait and see” from the sidelines how the early movers make out
- Much of this can be attributed to how highly risk averse the insurance culture is by its very nature; however, that too is nearing a tipping point as well funded, new entrants are beginning to force the issue with a tech focused approach to the market.

At the Inflection Point of Tech Transformation
The insurance industry as a whole must rapidly transition from the antiquated, less profitable business model of old to the tech-focused model of the future.
Current Attributes:
- Face-to-face interaction
- Engagement delegated to agents and brokers
- Paper intensive
- Proprietary, structured databases
- Opaque pricing
- Manual underwriting with proprietary, highly structured data sets
- Highly standardized products
- Reliance on legacy point solutions
- Slow processes
- ~5-10% fraudulent claims
Future Attributes
- Engagement across multiple channels: social, mobile, CRM, etc.
- Increased personalization
- Range of direct relationships with carriers to discreet relationships across value chain
- Transparent, dynamic, highly customized product and pricing
- Multi-source proprietary and third-party, structured and unstructured data pool
- Peer-to-Peer and Blockchain enabled
- Highly integrated, cloud-based systems built for mobile
- Proactive efforts to limit liability through sensor data
- Automated claim processing and payment
- Reduced fraud
Technology’s Potential Across the Value Chain
Early adopters of Insurance Tech have used it to improve operations across the value chain.

Omni-Channel Customer Engagement
- Insurers must adapt their engagement strategies as Millennials come of age
- Millennials are the largest U.S. demographic and reaching the age of buying their own insurance
- These younger, more tech savvy customers interact with their insurers 2.5x more frequently via social media and 2.0x more frequently via mobile devices than older generations
- Consumers, old and young, increasingly expect an “Amazonlike” experience from their insurers
- Insurers have not been able to innovate fast enough to keep up with this shift in customer expectations
- Insurers have taken initial steps in this direction by using more sophisticated digital sales and marketing strategies, which:
- Are omni-channel and customer centric
- Connect to consumer devices of all types, allowing for maximum customer interaction
- Use predictive analytics to proactively engage customers, particularly those “at risk”
- Use AI-enabled Chatbots to promote speed and quality of service

Broker Disintermediation & Threat of Tech Titans
- Independent brokers will continue to be displaced by direct-to-consumer and direct-to-business insurance models, whether online or offline
- More than 32% of U.S. consumers, and 50% of those ages 18 to 25, indicate they prefer to interact directly with insurers
- Online comparison tools are evolving from simple lead generation to offering full insurance capabilities
- The threat from B2C tech titans, leveraging brand and data analytics expertise, looms large
- Tech titans have huge amounts of customer data which would enable them to better estimate and price risk associated with each individual
- Incumbents are fearful that these tech titans will leverage their personal customer data to cherry pick the best customers (those who pay on time and who make minimal claims)
- Nearly one-quarter of Gen Y customers and up to nearly one-half in Latin America and developing AsiaPacific say they are very likely to purchase insurance from a technology company

Massive Opportunity for Process Automation
- It is estimated that 30 or fewer manual processes account for 40% of an insurer’s cost of doing business and 80% of customer activity
- Digitizing these processes can eliminate 25%+ of these manual labor costs
- Automation is now a “must have” and is being layered in across all functions and operations
- Increased focus on more advanced automation technologies including natural language processing, machine learning, and AI
- Huge volume of IoT and wearables data requires intelligent, automated solutions for analysis
- Data for predictive strategic decisions, such as identifying which product is best suited for a client given historical data and future projections based on historical trends.

Big Need for Big Data Analytics
- Every day 2.5 Exabytes of structured and unstructured data are created
- By 2020, IDC estimates there will be 30 billion internet-connected and mobile devices › Today’s automobile contains an average of 100 sensors
- Challenge and Opportunity: Efficiently and effectively translate big data into actionable information which helps insurers better price risk and process claims
- Big data analytics is impacting the entire insurance value chain
- 91% of insurance companies expect to implement company wide big data strategy
- 81% of insurance companies expect to increase big data spending

IoT: Real World Insurance Applications
83% of insurers expect IoT to bring about complete transformation or significant change in the industry.
- IoT Market expected to grow from $2.7 trillion (4.9 billion connected devices) in 2015 to nearly $7.1 trillion (20.4 billion connected devices) in 2020, implying a 20% CAGR
- Sensors are becoming smaller, cheaper, more efficient, and boast enhanced processing power
- IoT tech enables insurers to enhance their risk pricing models and accident prevention initiatives › Customers are increasingly comfortable with sharing their personal IoT data generated by their cars and other products such as FitBit, Nest, and Wave
- More frequent and personal data from customers would allow insurers to better price risk associated with each individual customer
- Customers want something in return for sharing this data and insurers will have to offer creative incentives
- The potential for IoT to significantly impact the insurance landscape is evident, but insurers have yet to make the leap to full-fledged investment and adoption.

- Auto is a prime example of the potential impact IoT will have on incumbents’ insurance models
- Technology-assisted driving creates a less risky environment, better pricing for drivers
- 24×7 monitoring of driving patterns and car security allows for enhanced profitability through more accurate pricing of risk and preventive engagement
- More personalized and more frequent interactions with insured drivers
- Risk ownership is shifting based on sharing economy (i.e. pay per mile) and autonomous driving
- Faster claim processing, through automated loss and damage related data provided by sensors
- What needs to happen for the flood gates of IoT adoption to open:
- Insurers must enhance ability to manage and analyze the volume and velocity of data generated by IoT
- Industry-wide security and privacy standards must be established

P2P Insurers: Revolutionizing an Age Old Concept
- Peer-to-Peer (P2P) utilizes crowdsourcing and social networking to create a shared insurance environment
- Pooling of “like-minded” peer groups, such as owners of cars, homes, and small businesses to contribute capital to the group and absorb each other’s risk
- Introduces strong incentive to keep claims down as unused premiums are returned or rolled
- P2P entirely disintermediates traditional insurers
- Insurers must enhance their product, pricing, and technology offerings to reduce customer turnover to P2P
- Blockchain technology and its use of distributed ledger is key to the functioning and proliferation of P2P insurance
- Speed and simplification of onboarding a new customer
- Automation of executing and enforcing performance of a contract
- Greater fairness and transparency
- Automate underwriting and claim handling
- Lower administrative costs
- Easier detection of fraud

Part-Time Insurance for a Part-Time Economy
- Staggering growth: driven by the likes of Uber, Lyft, and Airbnb, the sharing economy is expected to grow in excess of 22x from $15B in 2015 to $335B in 2025, implying a 30% 10-year CAGR
- The sharing economy is relatively new turf for insurers, presenting growth opportunities for insurance incumbents and new arrivals alike
- New complexities introduced that traditional insurance products don’t account for
- Insurers must modify and upgrade business processes and operations to capitalize on this expansive and highly-attractive greenfield opportunity
- New business insurance products will be required to keep up – e.g. pay as you go, “swipe” on/off coverage
- New entrants have a jump on the incumbents who need to quickly adapt in order to catch up
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