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AI Leads a New Wave of Insurtech Disruption

by internationalbanker

By Valerie Hernandez, International Banker

 

On April 9, it was reported that Akad Seguros, a Brazilian digital insurance firm, had raised a healthy $22.5 million in Series A funding, with the financing round being mainly supported by co-lead investment firms Valor Capital Group and Across Capital, in addition to participants Actyus, Endeavor Catalyst and Endeavor Scale-Up Ventures. A leading insurtech (insurance technology) firm based in São Paulo that offers cutting-edge insurance solutions to businesses, Akad represents just one of a new fleet of innovation-focused firms that are employing revolutionary technologies led by artificial intelligence (AI), accompanied by data analytics, the Internet of Things (IoT), blockchain and 5G, to not only consistently meet consumers’ changing expectations but also comprehensively transform the global insurance industry in the process.

Across Capital’s co-founder, Rafael Costa, described the traditional insurance industry as “dominated by established incumbents burdened by inefficiencies” and “ripe for disruption”. And insurtech companies such as Akad are now leading the way. They are leveraging such technologies to offer more innovative and convenient insurance products, as well as streamlining and optimising the customer experience to cultivate a more user-centric approach. They are typically enterprises that operate digitally by default. Among their key goals, they seek to:

  • disrupt and transform the insurance industry’s value chain,
  • introduce new and creative insurance business models that are revolutionising key tasks, such as risk management, pricing accuracy, claims processing and fraud detection,
  • satisfy the rapid evolution of insurance customers’ preferences.

They stand in stark contrast to the industry’s traditional incumbents. And they are receiving vast sums of financial support to continue their disruptive practices. Indeed, Boston Consulting Group’s (BCG’s) analysis found that global investment in insurtech registered a whopping 34-percent compound annual growth rate (CAGR) between 2018 and 2022. A marked slowdown did emerge last year, in line with the lull keenly felt across the broader fintech (financial technology) sector as high inflation, sharply rising interest rates and weak economic growth conspired to diminish the outlook for global technology investment significantly. That said, CB Insights did record in its most recent “State of Fintech” report for the third quarter (Q3) of 2023 that the insurtech sub-section led the quarter in total deals completed at 119, well above the second-placed payment sector at 73 deals and third-placed digital lending at 60 deals. The July-September period also witnessed US direct-to-consumer home insurtech company Kin achieve unicorn status, one of the few tech firms from any segment last year to do so.

According to reinsurance broker Gallagher Re, moreover, global funding for insurtech ticked up by 0.5 percent from the third to fourth quarter to reach $1.103 billion. And thanks mainly to an AI-powered surge of digital and embedded insurance solutions in recent months, the outlook for the burgeoning sector this year and next from several analysts appears cautiously optimistic as insurtech investment returns to its buoyant growth of recent years.

AI is facilitating dramatic upgrades to a whole host of insurer operations, including insurance underwriting, claims management, risk identification and mitigation, customer service and fraud prevention. “AI and ML models together can analyse vast amounts of data, including historical claims, weather patterns and geographic information, to assess risk more accurately,” Jason Keck, founder and chief executive officer of Broker Buddha, a digital client-engagement platform for insurance agencies, recently wrote in a piece for insurance publication PropertyCasualty360. “In particular, ML algorithms can analyze images, documents, and sensory data to assess damage and estimate claim amounts, expediting claims processing. Moreover, predictive modeling helps insurers identify high-risk customers, allowing for more accurate pricing and coverage recommendations.”

On the customer-facing side, moreover, the data analysed by AI and machine learning (ML) models can assist insurance carriers, brokers and agents to more accurately learn what their customers want, identify customer needs and make more precise underwriting decisions, Keck also noted. And the customer experience can be improved and streamlined via the adoption of AI-powered chatbots and voice assistants, many of which use ML and natural language processing (NLP) to continuously learn and improve the interactions between customers and insurance providers, especially customer queries. IBM’s watsonx Assistant, for example, aims to “empower customers to access basic inquiries, including use cases that span questions about their insurance policy to resetting passwords” as well as “quickly provide quotes and pricing, check coverage, claims processing, and handle policy-related issues.”

“AI has been game-changing for the insurance sector with more data available to assess risk and streamline processes,” Piotr Piękoś, insurance practice lead at Future Processing, wrote in an April 10 article for UK-based insurance publication The Insurer. “AI gives insurers the capability to achieve more and reduce the time spent on manual tasks, whilst reducing the number of errors that occur. This allows businesses to move resources where needed, creating new opportunities to uncover insurtech efficiencies.”

In the case of Akad, for instance, AI and ML algorithms are deployed to improve a range of business-to-business (B2B) insurance products and services, including greater levels of automation for tasks previously done manually, such as phone calls and paper-based applications. Last year, Akad issued more than 300,000 new policies and gross premiums exceeding $180 million. “Artificial Intelligence is starting to have significant importance in various economic sectors, and we believe it will be no different for the insurance industry,” Paulo Passoni, head of growth investing at Valor Capital Group, said of the Akad funding round. “Many processes in this market are still carried out manually through phone calls and paper forms, and we see a huge opportunity for efficiency gains through process automation.”

Such highly received innovations that continue to arise from the insurtech sector are also having considerably positive impacts on the rest of the industry, with much evidence showing comprehensive changes in traditional stalwarts’ strategies and models to ensure they are maximising their utility from the latest technologies, such as AI and ML.

Property-insurance firm CoreLogic, for instance, is among the key proponents of AI-based insurance solutions, with its underwriting platform now replete with AI functionalities that enable underwriters to perform more quickly, efficiently and accurately. The company’s Virtual Survey tool, which analyses exterior and interior photos from CoreLogic’s real-estate database, is one example. It allows underwriters to conduct accurate, imagery-based virtual inspections of any property directly from their desks (or anywhere in the world).

“CoreLogic’s Virtual Survey automatically detects and highlights exterior risk attributes that could elude the human eye, ensuring that underwriters get a complete picture and full understanding of every element of a property in question. As a result, users make better, more consistent underwriting decisions,” the firm stated in its AI-focused e-book guide. “This function utilizes AI to run data through sets of rules to automate actions, thus enabling straight-through processing. This saves considerable time and effort for underwriters who would otherwise spend hours reviewing aerial images from drones and then take analog notes of the hazardous conditions present. The AI Virtual Survey function also eliminates the need for insurers to coordinate costly and intrusive onsite inspections.”

But it’s not just AI that is transforming insurance capabilities. Insurtech firms are exploiting several key technologies that are ushering in a new paradigm for the entire industry. “InsurTech innovation is occurring across the entire insurance value chain—from distribution and marketing, product design, underwriting, claims management and balance sheet management and across all lines of insurance—property and casualty, life and health,” according to the US National Association of Insurance Commissioners (NAIC), which provides expertise, data and analysis for insurance commissioners to regulate the industry effectively and protect consumers. “InsurTech startups are reaching customers through new distribution mediums—addressing shifts in the way people communicate, access information and make decisions—while not disturbing traditional channels.”

The 2023 value of the global insurtech market of $16.6 billion is expected to skyrocket to $336.5 billion by 2032 at a compound annual growth rate of 41.0 percent, according to a recent report published by Market.us. The report cites several key influencers that are driving the growth of the insurtech market, including technological advancements involving AI, machine learning, IoT, blockchain and data analytics, and “revolutionising the insurance industry” while also changing expectations among consumers, who now demand “seamless, personalized, and digitally-driven insurance experiences”. Insurtech startups are thus capitalising on this trend by offering innovative solutions that cater to modern consumers’ evolving needs and preferences. “From on-demand insurance to usage-based pricing models, insurtech firms are reshaping the way insurance products are designed, distributed, and consumed.”

The report also identified health as being the dominant insurtech segment at present. “The growing demand for digital platforms that connect brokers, exchanges, providers, and health insurance carriers is expected to drive the market for this segment,” the report noted. “Advanced analytics is a key focus for life and health insurance companies to serve their customers better. Many insurance companies use insurtech to speed up claims processing. Insurers also want to combine their health insurance services and mobility features for added convenience.”

 

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