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Disruption to the Core

Since 2015, there has been an avalanche of new InsurTech applications that are designed to disrupt existing process and products. Initially, insurers were overwhelmed with opportunities. This is changing rapidly. Suppliers are bringing forward technologies that will require a clear alignment with insurers and an understanding about new linkages to risk data.

Yesterday’s Core System

For the last 40 years, insurers have spent the most time, and money, on core processing systems. Beyond the financial aspect, selection and implementation is typically a 3-5 year project. As a result, the life span of the core system is 10-20 years … or more.

In addition,  third party systems are frequently linked to the core system for analysis, complex underwriting and rating, claims management, etc.  This results in resistance to change core systems.

But now there is something new…

InsurTechs take fresh looks at insurance and develop technology – frequently from scratch. Sometimes these are relatively simple point solutions. However, with the rationalization of InsurTech, the applications could be as large and as significant as the core system itself.

Marcus Ryu, Guidewire’s CEO, was recently  quoted saying:

There is an unprecedented $3b going into InsurTech, a term that didn’t exist until recently. We see a bold new entrant like Lemonade threatening to upend the competitive landscape, and things like new devices creating opportunities beyond the traditional insurance relationship

How do insurers take this on?

A recent Research Council Study from Novarica, the analyst/consultancy, titled “Emerging Technology in Insurance: AI, Big Data, Chatbots, IoT, and More,” provides important suggestions and caveats in this new environment.

To analyze the state of current and projected deployment, Novarica called on 116 insurer CIOs from its client base to provide input.

Highest interest and activity – Artificial Intelligence  

Beyond two “ubiquitous” applications: Mobile and Predictive Analytics, Novarica found there were active pilots that were either deployed or planned.  By far, the most activity in P&C came in the category of Artificial Intelligence (AI).

The major sub-categories of AI usage were:

  • Machine Learning – most deployments were underwriting and claims, but there were several applications in marketing, service, and actuarial.
  • Unstructured Text – underwriting, claims (which included raw case notes), and marketing
  • Voice Recognition – service and claims
  • Image recognition – virtually all deployments in claims

These are in descending order of based on ‘deployed’ or ‘planned’.

Big Data

As any Data Manager will tell you, Big Data has become a critical element on its own. The problem, according to Novarica, is that big data is “characterized by the three Vs: volume, velocity, and variety that exceed what traditional databases and analytics tools were designed to handle.” A tricky place to be.

That said, however, Novarica advises:

The growth in the importance of big data is related to the growth of AI and predictive analytics. More critical analytical capabilities and more powerful analytical tools necessitate amassing and managing more data, and the availability of more data enhances the utility of more powerful analytics.

 Other Emerging Technologies

After AI (and its silent partner, Big Data), Novarica provides information on, and high level recommendations for:

  • Robotic Process Automation (RPA),
  • Augmented / Virtual Reality (AR / VR)
  • Blockchain
  • Telematics / Internet of Things
  • Wearables
  • Drones
  • Predictive Analytics
  • Smart Home Automation

Insurers will need time to determine the value of these elements and the complexity of implementation.

All of this being said…

Novarica provides an important caveat:

(T)echnology changes faster than culture and practice at most insurance companies—insurers that want to fully leverage the capabilities enabled by emerging technology should look at their products and processes in the light of new technical, market, and customer realities.

With this in hand, AI has been recognized as the leading InsurTech direction.  The disruptions of the InsurTechs have awoken a spirit that drives new competitive forces.

Where to go for more information?

AI wlll be a major theme at the 2018 Insurance-Canada Technology Conference, on 27-28 February 2018. Experts, including Novarica, will be providing actionable information. Details and registration information available here.

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