Almost half of global investment in insurtech (insurance technology) start-ups involves artificial intelligence (AI) and the Internet of Things (IoT), according to research from management consultancy Accenture.
The Rise of InsurTech report, published today, measures the volume and value of deals in the insurtech space in 2016, and assesses the cultural and technological challenges insurtechs and traditional insurers commonly face when partnering with one another.
The analysis of some 450 insurtech deals was released in conjunction with Accenture’s Fintech Innovation Lab in London, which has now established a dedicated insurtech stream.
The rise of AI and IoT insurtech
Central to the report is the finding the number of deals in AI (including automation) and IoT (including connected insurance) increased 79 percent in 2016. However, despite representing just 24 percent of the 216 insurtech deals last year, they now account for 44 percent or $711 million of that investment – a massive increase on the 10 percent share these technologies secured in 2015.
Roy Jubraj, a co-author of the report and Accenture’s digital & innovation lead in its UK & Ireland financial services practice, believes that these “technologies are primed to disrupt the industry in the years to come”, hence the establishment of a dedicated insurtech stream at the FinTech Innovation Lab.
The primary reason for this investment, according to the findings, is that the insurance industry sees insurtechs as an opportunity and not a threat.
The benefits of both IoT and AI are viewed by traditional insurers as being critical to increased personalization in their offerings and improved outcomes for customers in an industry which, like many others, faces significant changes to its business model caused by technology.
Indeed, the findings show that 86 percent of insurers believe they must innovate at an increasingly rapid rate to retain a competitive edge.
These technologies are moving the industry away from making risk assessments based on historic data, to monitoring potential risks in real-time. This practice allows insurtechs to prevent losses for customers – as the LeakBot smart connected water leak detector from HomeServe Labs can do in the home – and potentially reduce insurance premiums.
Growing pains and key takeaways
Despite their willingness to embrace change, Accenture’s report suggests that companies in the traditional insurance industry do not necessarily know how to act on it, and insurtech start-ups don’t understand how they can participate in that process.
The industry conundrum colloquially known as ‘300 years versus 300 days’ acknowledges the short lifespan that insurtechs have so far enjoyed in a centuries-old industry, and is a “big sticking point”, the report suggests.
“Insurtech culture does not truly understand the insurance culture, and start-ups can become frustrated by the sheer size of insurance organisations and their risk-adverse cultures,” the report says.
“Insurtechs need to recognize this disparity and amend their approaches to business and market integration while the industry gets up to speed.”
Insurtechs need patience to truly understand the market they are entering if deals between the old and the new are to be successful, it suggests.
In a similar vein, traditional insurers must be prepared to learn from the way insurtechs operate and through partnering with them, so that innovation becomes ‘business as usual’.
Julian Skan, a senior managing director in Accenture’s Financial Services practice who oversees the FinTech Innovation Lab in London, said: “The rise in insurtech is further evidence of the growing role that new technologies are playing in shaping innovation across financial services.”
“The next challenge for insurtech start-ups is the same as what the more mature fintechs are now facing – being able to translate that investment into growth and customer acquisition.”