The insurance industry changes slowly. Having existed in one form or another for thousands of years, insurers know how they like to operate and are cautious about striking out in a new direction.
The pace of change has picked up recently, however. Spooked by the effect that technology has had on industries from retail and travel to banking and share dealing, insurers wonder if they are next in line for disruption.
In an interview with the Financial Times this month, Thomas Buberl, chief executive of the French insurer Axa, said his future competition would be the likes of Facebook, Google and Apple.
As well as the technology groups, there is a host of start-ups aiming to bring new business models to the sector, from by-the-hour car insurance to life insurance that becomes cheaper the more you exercise.
According to Deloitte, about $2.6bn was invested in “insurtech” businesses in 2018. The amount is likely to rise this year — in the first half alone $2.2bn was put in, and deal sizes have been growing. Insurers are also responding to changing demands from clients that face new risks and want to know how the insurance industry can help them.
Investment in insurance technology businesses in the first half of 2019
In response, insurers have been investing heavily, both in external start-ups and in their own capabilities. There is plenty of excitement about the potential for big data and artificial intelligence to transform the way that the industry measures risk, as well as the way that it pays out to customers when something goes wrong.
One of the biggest emerging areas of technology is the internet of things (IOT) — using web-connected devices to measure and manage risk.
In consumer insurance, the most obvious application is telematics — sometimes known as black-boxes — in vehicles. These let insurers know if a driver is operating safely and, if necessary, they can change the premium. The devices also help prevent fraud by helping companies assess if the damage in an incident is consistent with how the vehicle was driven.
IOT devices are increasingly used in business insurance. For example, Axa XL — the commercial division of the French group — has been working with a start-up called Parsyl for two years. Parsyl’s systems check the condition of goods as they are shipped around the world.
“The technology monitors the condition, from the moment they go into a lorry to the other end, covering temperature, humidity, light and shock,” says Hélène Stanway, digital leader at Axa XL. “The data gives us a really good insight into the condition of the goods.”
According to Ms Stanway, the data can help you decide the best and worst times of year to transport goods, such as coffee beans and cocoa, or the way that particular goods are packaged.
At present, Axa XL uses the data to help clients prevent problems but it is working on integrating the systems into its insurance products. For example, if the sensors detect problems in a particular shipment, the claim could be settled immediately rather than waiting for a lengthy investigation.
This, says Ms Stanway, could bring insurers closer to their customers. “It is an interesting cultural shift,” she says. “Traditionally you talk to [your insurer] once a year but this changes the relationship as you are connected all the time.”
Change in the industry is not just about addressing traditional risks in new ways. It is also about addressing emerging risks. One of the biggest hazards facing business is cyber attack, which can leave companies facing severe disruption of day-to-day operations, reputational damage or a demand for a ransom to release data.
The market for cyber insurance, which covers companies for some or all these risks, is booming. According to RBC Capital Markets, the market is expected to grow from $6bn in 2019 to $15bn in two years’ time. More than 180 insurance companies now offer cyber cover in the US.
How to insure what cannot be seen
While insurers traditionally cover physical assets, such as buildings, transport or goods, they now have to consider the threat to companies’ intangible assets, such as intellectual property.
“Intangible assets are more than 85 per cent of the current value of the S&P 500,” says Joshua Walker, chief product officer in the intellectual property team at advisory firm Aon. “Virtually all the growth has been in the past 30 years. There has been a radical change.”
According to Mr Walker, companies have several kinds of intellectual property that they need to protect — patents, trademarks, copyright, trade secrets and confidential data, which can encompass a variety of information that a company may use.
“Information is like water,” he says. “It leaks.” He points to the danger of staff taking sensitive data with them when they leave, and the risk that hackers steal information.
Mr Walker says the industry is at the early stage of working out how to deal with risks such as the loss of trade secrets but it is possible to insure them.
“It is possible to insure [intellectual property] if you take reasonable measures to protect it,” he says. “It is not easy to do but if we don’t help companies do a better job, the trade secrets will disappear. If we are specific about the crown jewels, we can protect them.”
Case studies: data gathering improves accuracy of insurance quotes
Axa XL and Parsyl
To improve accuracy of insurance premiums on fragile commodities such as vaccines or cocoa, insurance provider Axa XL teamed up with insurance tech company Parsyl to monitor commodities inside shipping containers. Now goods are scrutinised from factory to retailer and checked for change in light, temperature or humidity. Parsyl sends its data to Axa XL for analysis. It allows clients to avoid a repeat of problems and reduces the chance of ruined batches, which should make insurance easier and cheaper.
Insurance companies such as AIG, Triglav, and P&V are using data analytics from insurance telematics company Amodo to learn about customers’ driving habits and offer bespoke pricing on motor insurance. Amodo gives customers a driving score. Insurance companies can then offer tips on better driving with discounts as an incentive.
With 85 per cent of the value of S&P 500 groups represented by intangible assets such as intellectual property (IP), many companies cannot find adequate insurance cover. Aon, the diversified risk specialist, noticed the gap in the market last year and launched a set of tools to help companies evaluate risk exposure. Drawing from 20 years of litigation cases, Aon’s software enables underwriters to tailor individual policies to cover the threat of IP litigation.
EY and Guardtime
Insurwave, a joint venture between professional services firm EY and software security company Guardtime, is a blockchain-powered platform for the sale, purchase and management of shipping insurance. The software is already used by more than 25 companies, including Maersk and Axa XL. So far in 2019, 40,000 events that resulted in a change to an insurance policy, such as a ship changing course, have been recorded on the blockchain. Such recording used to take up to six months but can be captured in real time, with details accessible by all parties to a policy.
Hiscox’s FloodPlus aims to make buying flood insurance faster and more efficient for consumers. The system automates the flood insurance application process, which before 2012 was paper-based and, in the US, largely provided by the government rather than private insurance companies. Working with more than 10,000 policyholders and delivering 10,000 quotes a week, Hiscox’s product means that an accurate insurance policy quote can be delivered in 20 seconds.
Inrobin and Mapfre
Software company Inrobin has combined the internet of things and machine-learning to predict faults in industrial machinery. Companies that use this digital platform can anticipate machine failures and avoid the annual cost of unexpected repairs — £18bn in the UK alone, according to Oneserve, an industrial management company. The data from this platform is stored by Inrobin and used by insurance companies to offer precise premiums. Spanish insurance company Mapfre is one of many companies to use this data to assess premiums.
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