From health trackers to GPS automobile monitoring to on-demand coverage for “micro-events” like borrowing a friend’s car for the afternoon, insurance technology (often called insurtech) is changing how insurance is bought and sold.
Andrew Johnston, global head of insurtech for commercial industry broker Wills Re spoke to Business Insurance about how his firm sees the insurtech industry. Insurtech emerged around 2010 as a break-away from fintech that attempted to take on established insurance industry players. Regulation requirements have forced a change in approach, with many insurtech startups now partnering with establishment firms rather than squaring off with them in the marketplace.
Companies like Tractable, which uses artificial intelligence to examine photos to assess damage suffered by automobile accidents is used to predict repair costs and speed claims processing. However, the growth of the insurtech segment has caused potential partners to slow down and approach investment more methodically.
“I think we’re generally heading toward the space where you have to adopt almost like an investment model-type approach where out of 20 companies one might be interesting,” Johnston says. “I also think we’ve learned ultimately that technology only really makes sense if it’s supporting an existing business model. If it’s not supporting bottom line improvements or top line growth relative to an existing business model, it is quite hard to integrate insurtech business.”
Johnston suggests that insurance companies are also waiting longer to invest in insurtech firms, if they do so at all. Some firms are dropping their investment plans altogether or, if they do decide to take the plunge, are doing so via partnership with known investors.
When the partnerships do makes sense, there's a benefit for both providers and customers. Insurtech helps the industry move away from traditional, broad actuarial tables that can lead to inflated premiums due to generalized groupings.
However, Johnston sees an ongoing challenge of marrying traditional insurance companies and fast-moving insurtech startups. It’s a culture clash that remains a significant hurdle.
“As an industry, we’ve adopted technology systems that will work for 20 years,” he says. “What we’re now working in is an environment where something can work for six months and you can spit it out and put something new in six months’ time, and culturally that’s quite a foreign concept in the industry.”