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Insurance Broken

If I had to recommend a one-line description for the 2016 InsureTech Connect Conference,  being held at the Las Vegas Convention Centre this week, I would suggest, “Insurance is critically important.  That’s why we must break it.”

The heart of the matter…

Caribou Honig, Partner at QED Investors and chairman of the event, opened with a statement and a short case study.

Honig’s day job is to finance InsurTech startups which will challenge, and in many cases, disrupt existing practices and principles of insurance.  But he started his session with a slide headed “Insurance Matters.” And he brought this home.

Honig has been working with the conference producers for the last  year and a half to organize this event.  Just as the task began, Honig had a fire in a vacation condominium  by the Atlantic.

Honig showed pictures of the inside and exterior of his condo just after the fire: smoke damage on the exterior, moderately heavy fire, water, and smoke damage on the interior. He also showed the effects on the adjacent condo building, which suffered greater damage.

Fast forward 18 months to new pictures.  Honig’s condo is completely fixed and all the interior elements replaced.  He had adequate coverage.

Honig also ended up with a direct view of the ocean. All that remains of the neighbouring building is a concrete slab, with grass growing through the cracks. The building owner did not have adequate coverage.

Insurance matters.

And it must continue to matter, with a twist …

Honig believes that practitioners are underestimating the impact of InsurTech developments over the next two years.  In part, this may be due to the lack of transformation that occurred following the rise of the commercial internet in the 1990s.

What was missing is now omnipresent:  The smartphone.  This has democratized the platform for the users and allows for rapid response to opportunities.  In this melee, there is a blurring of roles and pressure on existing models.

For example, Honig notes that a number of start-ups  in the InsurTech ecosystem have elected to become insurers or MGAs to increase their flexibility in bringing product to market.  (As an aside, in Canada we are seeing a few intermediaries adding InsurTech developers for the same reason.)

But there are consequences.  Honig notes that removing friction from the process of insurance and the increase in transparency for the product and process of insurance is resulting in deflationary pressures, providing support for a continuing soft market.

Taking it to the firm …

Prashanth Gangu and Matthew Leonard, partners at Oliver Wyman (who was the lead sponsor of InsureTech Connect) followed Honig to describe ‘Modular Financial Services’ – a construct Oliver Wyman uses to help firms understand and respond to the new paradigm.

The  core of this is peace of mind, a fundamental since the beginning of modern insurance.  The focus now is to bring this forward in a way that meets customer needs by moving:

  • from opaque risk transfer to a holistic chain of risk
  • from laggard to front runner in socio-economic change
  • from ownership of capital and processes to orchestrating resources
  • from numbers to customer empathy.

Getting there will be a challenge to the firms, many of which will have to deconstruct and reconstruct their businesses and be aware that traditional labels – such as ‘insurer’, ‘broker’, ‘reinsurer ‘ – may not apply well.

Trov – Overnight sensation with nibbled nails

Michael Coles, Chairman and CEO at Cedent interviewed Scott Welchek, CEO of Trov, highly regarded as an InsurTech success and disruptor.

Welchek was very candid in describing the journey and the current state.  He eschews the ‘disruptor’ moniker, but agree that Trov is very new and making an impact.

Welchek was very candid about the road to success.  He read from his journal, dated September 2015, which noted the challenges of market acceptance and the pressures of operating costs.

He also noted that the path forward could include embedding the Trov technology in other apps.

Then things blurred …

The amount of information that followed was a firehose handled primarily by the new startups, suppliers, and insurers.  I abandoned the notebook and took to twitter (@patrickvice, #insuretechconnect).

The jury is out, but not far …

Day two promises to be as information-rich as day one. Consensus  in the informal conversations is that InsurTech is reaching a state of maturity that guarantees its place in the top 5 trends to watch closely and be prepared to engage in quickly as the opportunities become manifest.  In some cases, the horses have left the barn.

Kudos to the organizers of InsureTechConnect, Jay and Bill.  It’s hard to keep a party of 1,250 happy with everything, but you are doing a great job keeping it on-time, and on point, which is very close to the heart of the matter.

 

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