Leading insurance players are rapidly reshaping their offerings to meet the expectations of digitally-savvy clients.
Like the rest of the financial services industry, the insurance market is being transformed by technological advances. Major players are investing heavily in technology which not only increases their service levels to consumers, but which also improves their own operational efficiency and risk assessment accuracy.
At the same time the increasing use of automation algorithms and big data sets is cutting the number of people the insurance industry actually needs to employ. In particular, chatbots – computer programmes designed to simulate conversation with humans – are now regularly used to take customers through applications, while data analysis and Artificial Intelligence (AI) modelling is used to spot fraud patterns quickly.
For instance, McKinsey forecasts1 that between 2015 and 2025 some western European insurers will cut up to a quarter of their staff as automation takes hold. The consulting firm argues certain functions are particularly at risk such as positions in operations and administrative support.
To meet future challenges it says insurers will need to source, develop, and retain workers with skills in areas such as advanced analytics and agile software development; experience in emerging and web-based technologies; and the ability to translate such capabilities into customer-minded and business-relevant conclusions and results.
This technological revolution has given rise to the InsurTech phenomenon which refers to the use of innovations designed to squeeze out savings and efficiencies from the current insurance industry model.
The first wave of investment in InsurTech was for policy price comparison platforms. But data innovation now plays a significant role in both the timing and scale of opportunities in the insurance market which realises it can harness technology to manage risk more effectively.
Against this backdrop it is little surprise that investors are pouring into the space, especially as the still conservative insurance industry is to an extent only now catching up on the rest of the financial sector which has embraced the FinTech revolution more openly in recent years.
In addition, a lot of incumbents have also built their models on technology and infrastructure that is very old and is therefore in urgent need of updating. Global financing in the InsurTech market has soared over the last couple of years with a number of major financing deals. While the market has attracted a number of pure disruptors, in some instances new players are also working closely with established operators to develop new techniques and platforms.
In the first half of 2017 we have seen both strategic and institutional investors reaffirm their confidence in the sector with a string of deals, and we fully expect this strong dealflow to continue throughout the rest of this year.
1: Automating the insurance industry, McKinsey Quarterly 2016