For the past 50 years, insurance has lived a slow and dormant existence with little forward movement and adoption of new technology short of the use of computers and usage of the internet to allow employees to exchange email. In fact, until 2019, Lloyd’s of London still required brokers to carry individual paper insurance market contract “slips” and receive a physical stamp from the underwriter, which designated the agreement to sign a line down on the contract. The contract only became “digital” when it was scanned in. Major brokers still insisted that paper policies be on hand or even held in storage for each individual placement.
On the edges of all of this, insurance was slowly starting to change. New companies began to develop new tools to revolutionize the way business was done. New companies that allow instant measurement of storm damage and calculated comprehensive damage began to enter the marketplace. Robust AI programs that allowed new analysis of claims data became more integrated into every actuarial model, and predictive analytics with companies such as Praedicat entered the forefront of the insurance lexicon by allowing insurers to compile composite exposure data and review the aggregated exposures.
In 2020, an event happened that took the insurtech space to an entire level. When COVID-19 hit, insurance as we knew it came to a halt. Manually printing policies, signing slips, and mailing checks became impossible processes. Out of that has grown a new class of insuretechs which hope to revolutionize the space. These new ventures have grown to bring a 20th-century industry into the 21st century. These changes are now being felt across the entire insurance ecosystem. For the purpose of this article, we will break it into 3 main categories:
- Data insurtechs
- Claims insurtechs
- Market insurtechs
Data Insurtechs
An Accenture report recently stated, “86% of insurers believe innovation must happen at an increasingly rapid pace to retain a competitive edge.” The original adoption for the insuretech businesses was the previously listed Lemonade and Root examples. Companies believed that by accessing new and unique data sources, they could then build algorithmic methods to more accurately price insurance. While this trend has been a core tenant of insurers since the dawn of Microsoft Excel, more and more companies are looking to big data, and manipulation of that data through AI, as the newest methods in pricing insurance.
The usage of machine learning in the insurance industry is at a height now that one could not have imagined even five years ago. While traditional insurance has long relied on the use of in-house and external actuaries to provide pricing models, many companies have thoroughly expanded the role to create complete teams of in-house data scientists.
Companies such as AXAXL have created entire departments tasked with the sole purpose of taking advantage of the company’s large data sets and manipulating them in new ways to program their computer systems to produce even more accurate results. While this process initially was used for auto insurance, more and more companies are detailing loss data around liability claims payments, medical loss payments, and adverse jury awards in various jurisdictions to determine a modern-day “redlining” of various areas of the country where one does not want to have large amounts of exposure.
Of course, we must also review two of the original insuretechs in RMS and AIR, the two leading providers of catastrophe modeling to the property insurance segment. For years, those models have been the benchmark against which all property treaties and direct policies were written and evaluated and even scrutinized by regulators and rating agencies. New companies continue to come to the forefront in this area with ways to review the RMS and AIR modeling data, and manipulate it.
Further, data measurement systems are being placed in areas around the Midwest and on buoys in the ocean to allow for more direct measurement of a variety of atmospheric conditions to further compile and analyze the various weather patterns in the developed world. That data is being sold from a new class of insurtechs which are allowing insurance companies ways to determine the states, and regions that are seeing further climate change and thereby increased risk for property damage.
The other new area of data is coming from the exploding ESG space. Many insuretechs are providing new ways to quantify and help the growth of ESG guidance. Companies like Blockchain Triangle are just one of the many companies that are reducing the barrier to entry of climate and infrastructure projects with the aim to accelerate the transition to a zero-emission global economy.
Claims Insurtechs
One of the most challenging areas of insurance and insurtechs has consistently been claims. Often a subjective area, claims management systems have often relied on a blending of computers based on traditional human input. As the world of claims has matured, more programs have looked at how to automate the claims process. This has not been more evident than with the introduction of parametric insurance. While traditional insurance has long worked in a world where a claim is submitted, then reviewed, and ultimately determined by a comparison of the claim being made to the insured’s policy, parametric insurance coverage works in a simple binary way. A parametric policy claim payout is stipulated in a way that should x happen, y is paid. Currently, the most common occurrences of this are in the world of property coverage. For example, if an earthquake above a 5.0 on the Richter scale hits within 50 miles of the 46 longitude and 26 latitudes, claim payment is paid. Each parametric policy is set with clear parametric triggers which cause the claim to happen. This has been especially prevalent in the world of Insurance-Linked Warranties (ILW) where if a certain level of damage occurs, the claim payment is triggered. However, new and innovative companies are beginning to find more ways to utilize this coverage.
In the world of cyber and smart contract insurance, companies are beginning to explore ways to write parametric policies which are triggered in the event of a certain type of hack, or a certain size of breach causing losses of funds. Due to the growing utilization of blockchain, a simple formula can show the amount of cryptocurrency that is stolen, and once hit, a certain claim payment can be made to the insured to help provide liquidity to instantly rectify the situation and supply liquidity to the marketplace.
Market Insurtechs
As previously discussed in this article, insurance has long been an industry that relied upon the adage of “if it ain’t broke, don’t fix it”. Effectively, insurance was being brokered and written and placed in the same ways that it had been going back to the 1950’s. It was with the advent of automobile insurance that we first began to see the changes coming. Companies such as Lemonade and Root looked to disrupt an industry that had long been done by placing insurance with your local agent. Delivering AI, chatbots, and other new ideas, both Lemonade and Root began to change the insurance market. Due to their early adoption by insurance buyers under 30, Lemonade and Root became two of the fastest-growing publicly traded insurers. Further, they found a foothold as successful Insuretechs. Since that early adoption, every company began to focus a portion of its resources on space. Next came the development and usage of cryptocurrencies and the digital asset industry. As a result, the world’s first decentralized mutual insurer known as Nexus Mutual was formed. Armed with the idea that risk transfer was something that could be done from individual to individual, Nexus gave members an avenue for transferring their risk to another party for a price set by the other party. It allowed individuals to effectively become their own underwriters, actuaries, and policy administrators. While this model has seen its share of busts, the Nexus Mutual model allowed digital asset coverage to be found and transacted utilizing digital currency i.e cryptocurrency.
Today, new, and innovative startups abound in the insurtech world. Companies such as Tigerlab, Vestoo, and Tremor are bringing about AI pricing and marketplace tools to disrupt the traditional pricing and trading business models. The next step is coming even further as companies look to cryptocurrency to provide seamless payment rails and trading platforms.
Nayms is at the cutting edge of market-disrupting ILS marketplace dynamics. It allows for insurance risk to be tokenized and traded through a proprietary trading platform, thereby allowing individuals the option to invest in insurance as an asset while recognizing yield and uncorrelated investment classes. Meanwhile, traditional insurance securitization can now utilize a seamless transition of capital and trade out of trapped capital positions, which provides a level of instant liquidity that has never existed before in the ILS market.
The dawn of insurtechs is at hand. For an industry trapped in the past, insurance is very quickly realizing that there are hundreds of new and disruptive forces that can change the way insurance is transacted, from underwriting to claims to capitalization, the outlook is very bright for insurtechs.
About Nayms
Nayms is a fully regulated, Bermuda-based marketplace for crypto-native insurance. Working with industry, we are building the technical and legal infrastructure over which all stakeholders in the value chain meet to coordinate risk transfer and to manage the complete cycle of their insurance business in one or more cryptocurrencies.
