As discussed in the Insurance News insurtech analysis section this month, the progressively dynamic nature of risk is exposing the flaws of the traditional, static approach to underwriting.
We face real threats that pose varying degrees of risk across all 5 collectively exhaustive macro areas of life; society, environmental, technology, geopolitical, an economic.
How we address these risks is under the spotlight and at the same time, we are seeing an explosion of data inputs to insurance, both internally (insurers are becoming more sophisticated in analysing and decoding their own customer trends and data) and externally from connected devices.
As discussed in previous analysis, connected devices are likely to become the fastest-growing cost of sale for insurance and will allow the capture, processing and delivery of data that inform risk profiles, unlocking the ability to underwrite more deliberately and drive innovation.
As insurers become more informed about the risk profile, there has been a phasing out of ‘blind acquisition’ and a new age of insurtech deploying a managing agent business model has an ethos of ‘controlled growth’, sustainable growth, growth driven by key risk metrics of frequency and severity for the benefit of the insurers’ P&L and the insurtechs P&L.
This is impacting insurance in a number of ways:
- Managing Agents are creating more value for their capacity providers, with greater premium margins hitting the insurer’s P&L.
- Insurers face a dilemma with increasing consequences. For an insurer to deploy a usage-based insurance model, for example, and under-price the lower risk customers, it would expose the cross-subsidies that make the moderate – high-risk clients premiums affordable. As such, one could anticipate that insurtech managing agents will be increasingly used by insurers as a vehicle to join the race and capture some of this value.
- There is a growing class of uninsurable risks e.g. homes in identified bushfire red zones. With more granular data comes the moral hazard of unaffordable insurance. A temporary negative externality of the modernising of insurance. A big positive coming from this consequence is that governments, government agencies and high-risk asset owners will be forced to proactively improve risk profiles, rather than reactively pursuing remediation following a loss.
Given the increasing number of connected devices in the community and increased computing power, we will eventually see the gap close between reality and the reality reference layer. The insurance industry has an interest in consuming such reference layer to optimise profitability, unlock new products and services and augment the premium pool.
The Actuaries Insitute has developed this simple chart to reflect what that future will look like;
At Insurtech Gateway, we are already invested in two founding companies that are using connected data to price dynamically.
KOBA Insurance will launch the first connected pay-by-kilometre car insurance in Australia.
It recently signed a SaaS (Software as a Service) partnership agreement with By Bits to use its unique technology and strategic insights.* KOBA is on track for launch in July 2020.
To find out more read our recent media release.. CLICK HERE
AuditCover is an insurtech solution for tax audit insurance.
AuditCover offers a fully digital insurance solution, underwritten by Lloyds, to enable accountants to quickly and easily manage tax audit insurance for their portfolio of clients to protect them against the rising cost and frequency of tax audits.
The technology development and thesis behind AuditCover, however, is not just to provide insurance but use connected data from accounting applications and its own data analytics tools to help accountants identify risky returns prior to lodgement and enable dynamic insurance pricing.
Insurtechs that provide a win-win-win solution is the key to a future of sustainable insurance. To find out more or to pitch your idea for an insurtech solution using connected data please get in touch.
+61 401 100 606