November 17, 2023 Over 9,000 people, consisting of investors and leaders from insurance technology companies, traditional insurance providers, and various sectors of the industry, came together in Las Vegas for InsureTech Connect (ITC) 2023. This event, recognized as one of the largest gatherings for insurance innovation on a global scale.
During our conversations with clients, gathering insights from expert panels, and exploring various booths at the event, we discovered four essential points that insurance providers and investors should remember for the upcoming years and beyond.
1. There is a widespread eagerness for generative AI, as the majority of companies intend to incorporate it into their products and services.
driving innovation in the insurance industry. By leveraging vast amounts of data and advanced technology, businesses aim to enhance customers’ interactions with their insurance providers and enhance financial outcomes. As a result, gen AI is widely regarded as a game-changing prospect for insurance companies.
In the future, the insurance industry may undergo significant changes, and this could involve forming new partnerships between insurtechs, traditional insurance providers, and large technology companies. However, at present, the development of gen AI is in its early stages, and the potential effects on insurtech companies, both positive and negative, are still uncertain.
Insurtechs and traditional insurance companies, who are experienced in evaluating risk, are taking steps to address concerns about compliance and accuracy while incorporating artificial intelligence (AI). Moreover, companies are making efforts to uphold ethical standards for output generated by algorithms, similar to human-produced work.
At present, the sector is making efforts to determine the most practical and effective methods to utilize the technology. Currently, insurance firms are employing artificial intelligence (AI) in order to detect fraudulent activities. AI is also being utilized to develop assistive systems that facilitate quicker employee training in claims, underwriting, and customer service. Furthermore, it enables workers to extract valuable insights from vast databases using user-friendly interfaces.
Training employees is a significant hurdle in embracing gen AI, as human assistance is still necessary for using this technology. Additionally, companies are considering whether to develop gen AI tools internally or acquire them from technology vendors. Initially, insurtechs are likely to play a pivotal role in assisting insurers with the implementation of this technology. However, insurers have a broader perspective and are considering the possibility of developing specific capabilities internally in the future.
2. Companies are once again prioritizing making a profit and finding solutions to the main problems faced by the industry.
In recent times, there is a growing trend among insurtech companies to work together with and assist established insurance providers. This marks a change from previous years when insurtech companies often aimed to compete against the existing players in the insurance and technology sectors.
the idea that the industry is facing widespread difficulties in making money. The discussions at ITC 2023 emphasized how businesses are shifting their priorities from seeking expansion to prioritizing profitability, all based on the belief that the industry is struggling to generate substantial profits.We observed a certain pattern at ITC 2022 last year.In today’s economy, businesses are facing difficulties in maintaining profitability due to the complexities of managing losses and controlling expenses amidst high inflation. Additionally, the industry’s financial stability is impacted by the escalating occurrence and severity of catastrophic events, the increasing costs of litigation, and the rising expenses of home and automobile repairs.
In the insurance industry, it is evident that companies are actively working towards addressing the core obstacles. Numerous insurtechs are currently directing their attention towards the following endeavors:
- Managing claims costs. There are numerous options available for insurers to forecast and stop losses. For instance, telematics can be utilized to gather data on a driver’s distance traveled and behaviors, while risk scoring can be applied to assess the risk associated with property, individuals, and drivers. Additionally, insurers can utilize aerial imagery to estimate losses in a cost-effective manner and lessen the time spent by claims adjusters in personally evaluating claims.
- Enhancing the process of evaluating and determining costs for insurance policies.At the same time, there has been a growing emphasis on managing the ratio of losses, which involves enhancing the process of selecting risks, determining prices, and assessing underwriting. This is because the property and casualty industry has been facing challenges like inflation, increased losses from catastrophic events, and other factors causing poor performance. This shift towards improved loss ratio management encompasses the advancement of tools like generalized linear models to ensure more precise and efficient outcomes. Additionally, the industry is also adopting faster ways to incorporate new data sources, such as aerial imagery, to enhance risk selection methods.
- Serving across functions. Insurtech companies that specialize in claims and underwriting are starting to interchange their roles and expanding their significance in the industry. For instance, providers of claims data and analytics are assisting insurance companies in enhancing their underwriting abilities, leading to improved loss costs.
Insurance coverage is developing and changing, with ongoing momentum for new risks and modifications in the reinsurance industry.
The industry is facing increasingly intricate risks due to various factors such as advancements in technology, climate change, geopolitical tensions, and the global population’s aging. These major developments are influencing the future risks that the industry will need to address and handle.
The participants in the ITC conference talked about the current trends in relation to emerging and developing risks.
- Increasing demand for cyber insurance is gaining significant traction.The increasing frequency and severity of cyberattacks are leading to a rise in managing general agents and managing general underwriters.
- Coverage for gen AI. There is an increasing demand for insurance coverage regarding gen AI and advanced computing. These insurance products are designed to offer protection against any unintended negative outcomes that may occur due to gen AI. One example of such risks is the potential safety hazards that could arise if gen AI models provide construction workers with incorrect or confusing instructions.
- Changes in reinsurance. During the ongoing difficult market conditions, where prices are high and insurers are more selective in their underwriting, reinsurers are enforcing higher retentions for primary carriers in order to decrease the number of property losses. Reinsurers are also aiming to make similar adjustments in casualty lines due to the rise in settlement amounts and an increasingly litigious atmosphere caused by social inflation.
Companies are striving to decrease their technology debt in order to make it easier to incorporate more sophisticated technology.
The sector is opting for a simpler approach when it comes to technology choices. Businesses are aiming to improve their fundamental data and technology systems, emphasizing the evaluation and reduction of technology debt, which has been rapidly accumulating in the past ten years or so.
In previous years, addressing fundamental technology and data infrastructure issues was not seen as important as companies focused on increasing growth and cutting costs. However, the rapid advancement of technologies like gen AI has compelled organizations to reassess their core systems and address technology debt in order to allocate funds towards new technological tools. Insurance companies with outdated systems may struggle to benefit from recent advancements in technology. For instance, many traditional life insurance companies are currently attempting to update their outdated systems and transition to cloud-based platforms.
Moreover, there is a growing overlap between skills in business and technology. Technology professionals must have an understanding of the financial issues that the industry faces, such as the pressure on loss ratios. Likewise, business leaders need to improve their technological knowledge to effectively utilize tools like gen AI in addressing their major problems. The collaboration between business and technology leaders will be essential for insurance companies to generate value for their customers and investors.
ITC 2023 revealed that companies are still utilizing data and emerging technology to revolutionize the insurance value chain. This development has the potential to gain momentum, particularly with the emergence of gen AI and other technological advancements. In 2024, the insurance industry is expected to further transition from fully integrated insurtech companies towards those that aid and enhance the overall industry ecosystem.
Download the article here