Following the launch of the FinTech Delivery Panel’s Insurtech Board last month, prominent VC Eileen Burbidge, chair of the Fintech Delivery Panel and Tech City UK, shares her thoughts on what’s driving investment in the UK InsurTech sector.
London has clearly established itself as the one of the world’s leading FinTech hubs, and InsurTech – technology innovation and its impact on the insurance sector – is quickly emerging as one of the jewels in Britain’s FinTech crown.
While it may seem that insurance is at the opposite end of the spectrum from digital innovation or technology advancement, the simple fact that insurance has been largely unchanged for hundreds of years is precisely why the sector is ripe for transformation, investment and technology innovation.
Why InsurTech and why now?
Firstly, insurance has traditionally been very paper-based, with a myriad of “transactions” and exchanges of information, historically all carried out on sheets of paper. The industry has been desperate for digitisation and the greater efficiency and customer convenience it can bring. But the digitisation of paper processes is only the very start of a far more profound revolution that digital technology is bringing to insurance.
Digital technology can not only streamline these processes, it can transform them both in the behind the scenes work of insurance and in the industry’s relationship with its customers.
Whether on paper or on screen, insurance has been and will always be data-centric. The collection and analysis of information to assess risks and prices for insurance cover is at the very core of insurance practice. Of course humans, and actuaries specifically, have developed a craft for this, but the power of digital technology and new software development can take this process to a new level of sophistication.
As well as being innately data-centric, insurance is characterised by high levels of transactions – specifically high and predictable volumes of regular transactions (premium payments) interrupted from time to time with materially irregular events (claims). Once again we see a process that is ideal for computer modelling and assessment and, of course, digital technology can provide genuine scalability.
But the transformation promised by InsurTech is not just about number-crunching, data analysis and cutting overheads – it is also about human interactions.
The customer relationship is central to the insurance industry, and digital technology offers more ways of engaging with customers, opening channels for their feedback and of course cutting out the need for intermediaries. In that vein, because insurance is an intangible product offering which is sold, renewed and “consumed”, it also is ideal for digital distribution.
From the point of view of the customer, the impact of digital efficiency and removing those middlemen from the equation also removes cost, but the overlap of insurance and digital technology also brings added benefits. The ability to manage and assess data in increasingly sophisticated ways allows insurers to offer more targeted and tailored insurance cover. Quite simply this means better products – insurance policies that are flexible, that reflect the complexity and variety of modern lives and businesses and which truly fit the customer.
Many of these benefits are already visible today in the first wave of InsurTech and more innovations are emerging all the time, but still we are only at the beginning.
If we look into the very near future we can see another wave of technological innovation and transformation set to break over insurance. Advances such as AI (artificial intelligence), IoT (Internet of Things) and other emerging technology fields will allow the insurance sector to expand it relevance and value even further.
Specifically, AI and machine learning will enable greater data analyses and prediction models for underwriting risk. It will inform insurers about specific customer segments and offer bespoke or more flexible cover and plans. Finally, it can play a material role in customer support, engagement and relationship management.
IoT on the other hand will relate directly to how insurers can become more intelligent about their offerings and their customers – without needing to burden the customers directly. As more and more connected devices become part of customers’ day-to-day experiences, the data generated and collected from the ever-expanding network provides new vectors by which to inform the insurance providers and about what matters the most.
Approximately $91bn in insurance premiums were written in London in 2015. There should be no doubt that this colossal and incredibly valuable industry will be dramatically affected by digital innovation – just as every other industry sector before it and to come. The most exciting aspect of what’s starting to happen is that the epicentre for innovation, collaboration and participation by long-standing insurance companies and startups alike is happening in London and the UK. The Lloyd’s of London insurance market has made the city the centre of the world insurance market for centuries, and therefore it’s natural that the evolution and digital maturation of the sector will also happen here.
Fortunately, in addition to the established insurance expertise in London, the city also benefits from great pools of talent, exemplary universities, a progressive and leading regulator and sources of investment capital to support the pioneers in this field. More than $2.3bn was invested in InsurTech in the last year, a 36% increase over 2016 and with London counting for more than a third of all European InsurTech funding. Given the inherent characteristics of insurance which make it ideal for digital disruption and improving the customer proposition as well as delivery and offers, those figures will undoubtedly continue to grow.