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Will You Survive the Great InsureTech Disruption?

An abundance of data and analytics technology creates both threats and opportunities for insurers.
By: | July 6, 2017 • 5 min read


In insurance, whoever holds the data, holds the power.

That’s because data is the key to effective risk assessment and underwriting.

Big Data and analytics are forcing insurers to adjust their processes when it comes to collecting and using data. With the expansion of the Internet of Things, sensor technology, machine learning and artificial intelligence, there is more information available than ever before.

The abundance of data – and the technology used to capture it – is driving profound disruption in the relationship structure of the insurance industry. As the traditional gatherers and guards of massive amounts of data, insurers face threats from new, tech-savvy competitors who can adapt to changes more quickly.

“There are very powerful trends coming together to cause serious industry disruption. That can be a big threat, but if insurers start responding now and embracing the change, it could also be a big opportunity,” said James Dodge, Senior Consultant, Advanced Analytics & Data Solutions, Milliman.

InsureTech Overturning the Status Quo

James Dodge, Senior Consultant, Advanced Analytics & Data Solutions

Technologists, data scientists and their deep-pocketed capital backers are jumping in with both feet. Though lacking insurance expertise, they see the vast opportunity to harness the data that insurers need. In doing so, they present a threat to traditional insurers, especially smaller and mid-size companies who lack their own large data stores.

“Not a lot of Insuretech companies actually want to be in insurance,” said Robert Meyer, FCAS, MAAA, Principal, Consulting Actuary, Milliman. “It’s a highly regulated industry that requires a lot of capital, and few have actually jumped into the pool of taking on risk. But they are positioning themselves as the purveyors of data.”

Distribution is a key area of focus for many Insuretech startups. Specifically, the new players think they can disintermediate brokers for small and mid-size accounts.

But there are other ways that technology can profoundly change insurance distribution.

Original equipment manufacturers (OEMs), especially in the case of IoT-enabled ‘connected cars,’ are one example of a new competitive threat to traditional distribution. Instead of providing auto coverage through a traditional carrier, they may try to capture more margin by partnering with an InsureTech startup.

“Say, for example, a young InsureTech firm builds a great app and sells it to a reinsurer. The OEM may decide they want to offer that as a value-added bundled offering to their customers,” Meyer said. “In doing so, they bypass the middleman, save costs, and create a more modern, digital experience for their customers.

“Insurers will then have a disintermediation problem, along with a new emergent competitor they never thought was their competitor before.”
Other insures could take a similar tactic by white labeling their products and selling them through InsureTech firms to trim expenses and expand their market share.

Insurers who are too slow to digitize or update their process could be pushed out altogether. They’ll lose customer loyalty to competitors who have refined their customer experience and engagement and fall behind those competitors who reduce their costs faster.

Opportunities Emerge

Robert Meyer, FCAS, MAAA, Principal, Consulting Actuary

The flipside to the threat of competition is that insurers who manage to stand out from the crowd win over customer support.

Small insurers, for example, are better positioned to adopt new technology and build ecosystems that are flexible enough to adapt to shifting trends and further technology advancements. Large insurers relying on legacy systems will have a harder time making that change and staying up to date.

But larger insurers can leverage their resources by directly investing in or acquiring InsureTech firms. Even if they can’t build the platforms themselves, partnering with InsureTech companies provides a closer look at their infrastructure and allows them to reap the benefits of access to data without storing or managing the data themselves.

“Using these firms as a stand alone data vendor also helps insurers avoid some regulatory overreach,” Dodge said.

Regulatory obstacles in the use of data science in underwriting often leave insurers unsure of how to apply new data sets, and therefore hesitant to embrace the new, interconnected technologies that help collect it. It’s a fear based on a limited view of data analytics.

“Insurers really do six major things. There’s product design, marketing and sales, pricing, underwriting, claims, and services,” Dodge said. “Regulators may not allow data science in setting rates if they perceive it as discriminatory, but you can absolutely still apply data analytics to the other five processes.”

Carriers can target marketing and distribution with demographic data, enhance their claims experience with user-friendly portals, improve claims handling through predictive analytics, and perhaps most importantly, incorporate data into the underwriting process.

“If regulators will not allow data to dictate pricing, you can achieve a similar effect in underwriting, outside of the rate structure,” Meyer said. Collecting data about a potential client’s financial reliability, exposure to different types of risk, and risk mitigation strength can guide underwriters to, for example, offer premium discounts for positive marks, or perhaps reduce sub-limits for higher-risk insureds.

“By taking in as many data elements as you can and applying them in other areas of your business, your organization will learn an awful lot about managing a high volume of data, learning from it, and then acting on it,” he said.

Digitize or Die

To reap the benefits of data and analytics technology, insurers have to act now. Taking a reactive instead of a proactive approach could do irreparable harm long term.

But throwing the latest technology at a problem without adjusting an accompanying process isn’t the answer.

“Clients are asking how they should embark on their own digital transformation. Not only do we have expertise in managing large data sets, but we can also advise on how to adjust relationship management within the industry along the way as the market undergoes continual disruption,” Meyer said.

Milliman is focused on working with both Insuretech players and traditional insurers to create a technology ecosystem built to adapt to continuing changes. They have dedicated themselves to staying at the leading edge of technology and the Insuretech trend.

“We are branching out from actuarial work and consulting into Big Data, machine learning, and analytics. We’re not focused on client-facing platforms, but rather building ways to combine human and machine learning to get the best outcome,” Dodge said. “We can help clients take advantage of the opportunities and plan for the future as changes continue.”

To learn more, visit http://us.milliman.com/.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Milliman. The editorial staff of Risk & Insurance had no role in its preparation.




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Property

Insurers Take to the Skies

This year’s hurricane season sees the use of drones and other aerial intelligence gathering systems as insurers seek to estimate claims costs.
By: | November 1, 2017 • 6 min read

For Southern communities, current recovery efforts in the wake of Hurricane Harvey will recall the painful devastation of 2005, when Katrina and Wilma struck. But those who look skyward will notice one conspicuous difference this time around: drones.

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Much has changed since Katrina and Wilma, both economically and technologically. The insurance industry evolved as well. Drones and other visual intelligence systems (VIS) are set to play an increasing role in loss assessment, claims handling and underwriting.

Farmers Insurance, which announced in August it launched a fleet of drones to enhance weather-related property damage claim assessment, confirmed it deployed its fleet in the aftermath of Harvey.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now,” said George Mathew, CEO of Kespry, Farmers’ drone and aerial intelligence platform provider partner.

“The current wind and hail damage season that we are entering is when many of the insurance carriers are switching from proof of concept work to full production rollout.”

 According to Mathew, Farmers’ fleet focused on wind damage in and around Corpus Christi, Texas, at the time of this writing. “Additional work is already underway in the greater Houston area and will expand in the coming weeks and months,” he added.

No doubt other carriers have fleets in the air. AIG, for example, occupied the forefront of VIS since winning its drone operation license in 2015. It deployed drones to inspections sites in the U.S. and abroad, including stadiums, hotels, office buildings, private homes, construction sites and energy plants.

Claims Response

At present, insurers are primarily using VIS for CAT loss assessment. After a catastrophe, access is often prohibited or impossible. Drones allow access for assessing damage over potentially vast areas in a more cost-effective and time-sensitive manner than sending human inspectors with clipboards and cameras.

“Drones improve risk analysis by providing a more efficient alternative to capturing aerial photos from a sky-view. They allow insurers to rapidly assess the scope of damages and provide access that may not otherwise be available,” explained Chris Luck, national practice leader of Advocacy at JLT Specialty USA.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now.” — George Mathew, CEO, Kespry

“In our experience, competitive advantage is gained mostly by claims departments and third-party administrators. Having the capability to provide exact measurements and details from photos taken by drones allows insurers to expedite the claim processing time,” he added.

Indeed, as tech becomes more disruptive, insurers will increasingly seek to take advantage of VIS technologies to help them provide faster, more accurate and more efficient insurance solutions.

Duncan Ellis, U.S. property practice leader, Marsh

One way Farmers is differentiating its drone program is by employing its own FAA-licensed drone operators, who are also Farmers-trained claim representatives.

Keith Daly, E.V.P. and chief claims officer for Farmers Insurance, said when launching the program that this sets Farmers apart from most carriers, who typically engage third-party drone pilots to conduct evaluations.

“In the end, it’s all about the experience for the policyholder who has their claim adjudicated in the most expeditious manner possible,” said Mathew.

“The technology should simply work and just melt away into the background. That’s why we don’t just focus on building an industrial-grade drone, but a complete aerial intelligence platform for — in this case — claims management.”

Insurance Applications

Duncan Ellis, U.S. property practice leader at Marsh, believes that, while currently employed primarily to assess catastrophic damage, VIS will increasingly be employed to inspect standard property damage claims.

However, he admitted that at this stage they are better at identifying binary factors such as the area affected by a peril rather than complex assessments, since VIS cannot look inside structures nor assess their structural integrity.

“If a chemical plant suffers an explosion, it might be difficult to say whether the plant is fully or partially out of operation, for example, which would affect a business interruption claim dramatically.

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“But for simpler assessments, such as identifying how many houses or industrial units have been destroyed by a tornado, or how many rental cars in a lot have suffered hail damage from a storm, a VIS drone could do this easily, and the insurer can calculate its estimated losses from there,” he said.

In addition,VIS possess powerful applications for pre-loss risk assessment and underwriting. The high-end drones used by insurers can capture not just visual images, but mapping heat, moisture or 3D topography, among other variables.

This has clear applications in the assessment and completion of claims, but also in potentially mitigating risk before an event happens, and pricing insurance accordingly.

“VIS and drones will play an increasing underwriting support role as they can help underwriters get a better idea of the risk — a picture tells a thousand words and is so much better than a report,” said Ellis.

VIS images allow underwriters to see risks in real time, and to visually spot risk factors that could get overlooked using traditional checks or even mature visual technologies like satellites. For example, VIS could map thermal hotspots that could signal danger or poor maintenance at a chemical plant.

Chris Luck, national practice leader of Advocacy, JLT Specialty USA

“Risk and underwriting are very natural adjacencies, especially when high risk/high value policies are being underwritten,” said Mathew.

“We are in a transformational moment in insurance where claims processing, risk management and underwriting can be reimagined with entirely new sources of data. The drone just happens to be one of most compelling of those sources.”

Ellis added that drones also could be employed to monitor supplies in the marine, agriculture or oil sectors, for example, to ensure shipments, inventories and supply chains are running uninterrupted.

“However, we’re still mainly seeing insurers using VIS drones for loss assessment and estimates, and it’s not even clear how extensively they are using drones for that purpose at this point,” he noted.

“Insurers are experimenting with this technology, but given that some of the laws around drone use are still developing and restrictions are often placed on using drones [after] a CAT event, the extent to which VIS is being used is not made overly public.”

Drone inspections could raise liability risks of their own, particularly if undertaken in busy spaces in which they could cause human injury.

Privacy issues also are a potential stumbling block, so insurers are dipping their toes into the water carefully.

Risk Improvement

There is no doubt, however, that VIS use will increase among insurers.

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“Although our clients do not have tremendous experience utilizing drones, this technology is beneficial in many ways, from providing security monitoring of their perimeter to loss control inspections of areas that would otherwise require more costly inspections using heavy equipment or climbers,” said Luck.

In other words, drones could help insurance buyers spot weaknesses, mitigate risk and ultimately win more favorable coverage from their insurers.

“Some risks will see pricing and coverage improvements because the information and data provided by drones will put underwriters at ease and reduce uncertainty,” said Ellis.

The flip-side, he noted, is that there will be fewer places to hide for companies with poor risk management that may have been benefiting from underwriters not being able to access the full picture.

Either way, drones will increasingly help insurers differentiate good risks from bad. In time, they may also help insurance buyers differentiate between carriers, too. &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]