Several years into the fintech revolution, the insurance world is waking up to the disruptive possibilities of new technologies. So what's hype and what's actually useful?
Since around the start of the Great Recession in 2008, there has been louder and louder noise coming from fintech: the portmanteau combination of existing financial services and new online-first technologies. Together these can create disruptive business models, responsive customer services, larger & fairer markets, better managed risks and new opportunities for innovation.
All aspects of financial services seem to be up for improvement by venture capital and tech startups, and there's tremendous activity in the sector: from micropayments to copycat trading, forex to fraud detection, blockchain to wealth management, peer-to-peer lending to crowdfunding.
Goldman Sachs estimated in 2015 that the size of the pot is worth USD4.7T in revenues1 and investments have grown massively in the last two years; with an estimated USD13.8B invested globally into VC-backed fintech companies, 2x that of 2014 and 6x that of 2011. Europe accounted for just USD1.5B in 2015 (USD1.1B in 2014) but more than half of that was right here in London - so we're well-funded locally. It's also interesting that corporate investment has grown and remained steady in 2015 at around 25% of the total - it's not all buccaneering private equity money, but steady money from established players seeing the fintech sector as mature and worthy of investment.2
Now for the last 18 months we have seen similar attention in the insurance sector, where challengers are creating new business models and incumbents are coming around to the idea that they need to innovate to stay relevant. Making the similarities to fintech clear, the name instech seems to have stuck.
So what's happening in instech? Is it hype, or might there be something critically important for the industry here? Also, what part can we play as an industry-focussed data science consultancy?
InsTech is Growing
In the last few years, a virtuous combination of factors has led the technological innovation first expressed through greenfield internet-based startups (search, social, mobile etc) to permeate established business sectors, bringing with it new efficiencies that force everyone to raise their game.
The insurance world is no different, and despite a long history of actuarial innovation, the sector in general is quite slow to use technological advances. For example, it's common for large underwriting contracts to be agreed face to face, stored on paper and carried around in files. It's common for insurance policies to be mediated by a brokerage, so that insurers have little to no interaction with the customer and know very little about them.
Now greatly increased computing power, high quality open source software, online communications, ubiquitous internet connections, smart mobile devices, and a new generation of online-first customers, are all forces driving the status quo toward needing to think differently.
The future is already here – it's just not evenly distributed — William Gibson, 2003
We wrote last year about how new new mathematics and technology tends to improve insurance practice, and it seems many others in our sector are thinking along the same lines.
On the customer-facing side, some startup companies are offering smoother policy purchase experiences, across-the-market policy comparisons and customised experiences. Often these are supported by accelerators, 'digital garages' and startup bootcamps and the whole affair is growing momentum.
More interesting (to us) is the back-office, where insurers are starting to take steps to better understand their customers and their marketplace, tailor unusual policies directly to customer types, create new P2P business models, offer micro-insurance, better manage fraud, and investigate the use of distributed ledgers to more efficiently operate the marketplace.
We're certainly far from a utopia of automated decision making, but there are strong and pragmatic steps being taken towards modernisation. Recent reports from other consultants in the field cover the challenges of integrating AI in the C-Suite and the difficulties of something as straightforward as building customer relationships through mobile.
Above all there's a growing acceptance that trying to innovate is far less risky than hoping it will all go away.
London is Booming
As we know, the London Market is a global hub for insurance, underwriting GBP48B in 2014, roughly 5% of the worldwide total and more than the next 3 major locations combined.3 Within the industry there's a deep history of technical capability and worldwide influence. Recently, there's a growing perceived need to innovate, likely inspired by global technological innovation and maintained by well-funded local accelerators and a buzzing startup scene.
The InsTech London group is worth watching as they're particularly active, organising regular meetups, promoting conferences, hosting regular blogs & tweets and helping to build a community of experts.
We also have a strong presence in Dublin and so are privy to the takeup of instech there, including well-attended events like the Aviva Innovation Bootcamp and Startup Awards Ireland. However, markets like Ireland are traditionally slower-moving, and with some notable exceptions (whom we're unable to mention), few major corporates have taken the initiative, and funding for startups remains low. We expect this to change in the latter half of 2016 as the community grows and corporate innovation strategies kick into gear.
What We Offer
Applied AI is primarily a consultancy offering advice, statistical analysis and bespoke machine learning products to large insurers. We also take on projects with banks and funds, and have a pretty strong base of internal R&D, innovative PoCs and prototypes. That said, we're not a conventional product-based startup and certainly don't behave like one.
We view our role as helping our long-established clients explore new business opportunities and innovate to improve their existing business. We understand how important it is to keep business running smoothly, and we help justify difficult changes through well-founded assumptions, engaging proofs-of-concept, controlled experiments, back-testing, simulations and scenario modelling.
I'm personally delighted that the instech community is growing and that more and more established insurers are coming around to our way of thinking on preparing for the future.
If you've made it this far down the page and are interested in talking more about our innovations right across the industry from regulation, reserving, data security, correlated risks, fraud, customer management, marketing, credit risk, persistency and more - do get in touch: email@example.com