Insurtech is one of the most interesting and relevant branches of Fintech universe but is still less known and to understand it better we asked few basic questions to Matteo Carbone, Founder and Director of IoT Insurance Observatory and one of the best known thought leader on this field.
Question: We can find a lot in the news about innovation in financial services with focus on payment system, mobile banking and even robot advisory, but insurtech is quite a less common argument: can you please tell us in brief what is it about?
Answer: You have right; it is less common. But it is not less interesting.
I would like to share with you a concrete example of that. I have written – together with Andrea Silvello the founder of the insurtech startup Neosurance – the book “All the insurance players will be insurtech”. I have been the first – and at the end of March still, the only – book dedicated to the insurtech trend. But It has been steadily in the top 1000 bestseller management book on Amazon since the publication.
Back to your question, Insurtech is the usage of technology in the insurance sector. How can a player in the insurance sector not to pose the question of which modules within its own value chain should be transformed or reinvented through technology and the use of data. We live in an era where you can only innovate or die. This is the reason because I believe any insurance players – from the reinsurers to the insurance carriers to the intermediaries – will be insurtech, meaning organizations where technology will prevail as the key enabler for achieving their strategic goal.
Insurance is about to assess, manage an transfer risk. Insurtech is “superpower” have enhanced the ability to perform those activities.
Question: How will insurtech affect employment in insurance industry? Will all administrative staff be replaced by AI ?
Answer: Yes as the adoption of personal computer and mail had done in the past. The employment in the insurance industry has changed compared to 30 years ago and will change faster in the future.
But let me say that this will be not the most immediate impact and for sure not the most relevant.
Let’s consider to the key unique characteristic of the insurance sector. On one side, talking about the top line, the sustainable growth in the insurance sector require underwriting discipline. On the other side, when we talk about costs, the claim payment is the elephant in the room. Well, AI has the potential to tremendously improve the effectiveness of the underwriting decision and the claims settlement decision. I’m not talking about the wishes of some ambitious and brave founders screaming daily the superiority of their AI and the readiness to eliminate the humans from those processes, but sadly their startups have paid more than $1 as claims for each $1 earned from policyholders in the last 12 months. Instead, I’m talking about decision support systems which have been trained on millions of insurance policies and claims. Tools capable of supporting the activities of the people enhancing the effectiveness of their decisions.
There is a lot of talk regarding Internet of Things (IOT), how it will affect insurance industry?
Answer: Yes, a lot of talks but unfortunately 90% of the discussion are scraping the surface or focusing some myths crystallized there for years. The average understanding of this opportunity in the different markets is low, and there are a lot of superficiality from the analysts in the various markets. But I have been lucky to have the opportunity to see with my eyes some players obtain amazing results and create the foundation for a brilliant future in insuring the hyperconnected world: Unipolsai, Groupama, Discovery, American Family, Allstate, Swiss Re and Munich Re only to name a few.
I can talk for days about my view on how IoT will affect the insurance industry, the current best practices, and the typical pitfalls I have seen. Trying to make a long story short, IoT insurance is a paradigm based on the value sharing between the Insurance company, the intermediaries, the clients and the entire society. Insurance IoT is the bundle between an insurance contract and services based on IoT data. It is common to hear Insurance CEO affirm their strategic goal to sell services to their customers, when these services are based on IoT there is a terrific opportunity. The same data necessary to deliver these services can be used to improve the technical profitability of the insurance portfolio through a better risk selection, an enhanced loss control including all the claims management activities, the mechanisms to influence behaviors promoting the less risky ones, and more accurate pricing. The sharing of this value with intermediaries and clients have already allowed some insurance carriers to effectively deliver a valuable bundle between insurance coverages and IoT solutions
Amazon is recently talking with JP Morgan and Capital One to enter retail banking industry (after deploying some 3Bn in corporate lending) how about insurance? Are there any Big Bad Tech Giants looking at this sector?
Answer: Let’s start with the personal lines, where the Big Tech Giants look to have more chances; I think they will not disrupt the insurance sector. I believe they will do something – especially around insurance coverages on the products they sell – but they will not be able to touch the core of the insurance profit poll of personal lines (auto, property, life, health). My view is based on two reasons. The first is the need of underwriting discipline to survive in the insurance sector. It looks to me that underwriting discipline conflict with the culture of any tech giant. The second aspect is the local characteristics of each insurance market what the customers want (need) to buy in the different markets and how they want to buy it. I’m skeptical about the tech giants’ ability to deal with those local insurance characteristics. Let’s image tech giants deal with that from their offices in Silicon Valley or the European hubs in Dublin. I believe this weakness will emerge as soon as they dirty their boots on the insurance distribution (or more steps of the value chain). About the commercial lines – the small and medium market – I see more threats for the incumbents…but not from the tech giants, from small players have a deep knowledge of the single business and a customer base already in place. Those players can cross-sell insurance to their clients, some of them have already become an MGA to do it.
How do you see Italy from your global perspective? Is fintech and insurtech more a threaten or an opportunity for our country?
Answer: Let me skip the fintech part, I’m an insurance guy, and because I’m disappointed about the superficiality of how to speak about insurtech without any cognition of the insurance fundamentals, I don’t want to do the same saying some superficial stuff about fintech.
About the insurtech, the Italian market is the international best practice in the usage of telematics. There are currently more than 7 million policies telematics-based in Italy, the last data from IVASS shows a penetration higher than 20% on the auto personal lines. The lessons learned by the insures on the Italian auto insurance market will be precious in their transformation to Insurtech, because all the insurance players will be insurtech.
Stay tuned on Fintech World Join the LinkedIn Group – Fintech Village
GLG – Gerson Lehrman Group – Council Member