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Addressing the potential disruptions and biggest challenges of the future in the insurance industry

Written by Roger Peverelli and Reggy de Feniks - Founders The DIA Community on Dec 1, 2023

The road to innovation is a winding one, and one that’s not clearly signposted. We sat down with José Antonio Arias, Group Chief Innovation Officer at MAPFRE, to talk about MAPFRE Open Innovation, the potential future disruptions of the insurance industry, and the biggest challenge for a Chief Innovation Officer.

It has been almost 5 years since MAPFRE announced the creation of MAPFRE Open Innovation as a strategic commitment to transformation. What have you learned and what do you think needs to be changed?

We review our own innovation model every year through a rigorous process of self-analysis, and we finetune the mechanisms based on the results we see and the evolving business strategy. Some of the programs we launched “way back” in 2018 remain practically intact, such as our intrapreneurship program, #innova, in which more than 4,000 employees have taken part so far. Others have grown in size, such as the Alma Mundi Insurtech venture capital funds we participate in; after the first €100M fund, this year we announced the launch of a second fund, with a target size of €250M. We can proudly say that since its creation, more than two million customers have benefited from the solutions originating in MAPFRE Open Innovation.

This same year MAPFRE presented its new purpose, “We take care of what matters to you”. How does MAPFRE Open Innovation contribute to this purpose?

We leverage alliances and emerging technologies to create a positive impact on our clients and society. This aligns us with MAPFRE’s purpose and is a true reflection of our social soul: we don’t innovate for the sake of it. We do it with our clients and their world in mind. Our projects deal with challenges that are of great social significance, such as the divide in accessing health services or the stigma surrounding mental health. Aside from innovation, sustainability is another of MAPFRE’s pillars. Taking care of the planet is also about taking care of the people who live on it.

What has been the technology that has most changed the course of your work in these almost 5 years of open innovation?

Without a doubt, artificial intelligence (AI) and, more specifically, deep learning. In 2018 MAPFRE had already taken some concrete steps in intelligent automation using RPA (Robotic Process Automation) technology that was mature then. The next step was the automation of complex processes, which entailed interaction with our clients and decision-making based on structured and, more importantly, unstructured data from multiple and varying sources. We had various research teams pursuing the same goal, but the technology available at the time didn’t allow us to get where we wanted to go.

We decided to focus our efforts on the three most advanced startups, having our experts join their teams and contributing large sets of labeled data to train and refine their algorithms. It wasn’t until the end of 2020 that the models began to deliver sufficiently high levels of exactness and accuracy to facilitate pilot projects with real customers in real life scenarios. From there, the joint work and shared vision began to pay off. Today, for example, it’s possible to automate vehicle appraisal with minor damage to over 98% accuracy, meaning the customer can get a diagnosis and repair quote in less than three minutes.

One technology that looked set to enter the insurance sector with force was the Internet of Things (IoT). However, it doesn’t appear to have become the norm.

Dealing with hype and trends is another challenge facing any innovation team, that’s for sure. A few years ago, the stars were aligned in terms of flooding the market with connected devices. Demand, fueled by the big players, seemed limitless and some very affordable devices appeared. Insurers were under pressure to differentiate themselves and at the same time satisfy their huge appetite for data capture. Today we believe that connected insurance makes sense for specific segments where the device provides enough value to justify its cost or is in itself directly essential for the insurance solution to work. I’m thinking here about certain industrial risks or some parametric insurance solutions.

If it’s not going to be the IoT, where is the disruption in insurance coming from?

There’s no single answer, since the Netflix, AirBnB or Uber of the insurance sector has yet to appear to redefine the rules of the game. Ten years ago, we thought that disruption was coming from the new digital insurers, with simple products at reasonable prices and direct distribution, all 100 percent online. That model caught on, but it hasn’t really dented the leadership of the traditional distribution model and, in fact, in some mature markets, the direct digital channel has been stagnant for some time. Then came the wave of new generation products: pay-as-you-go, on-demand insurance, on/off insurance, etc. They’ve enjoyed some success in specific segments, but they’re not the new normal either. And in the last five years, we’ve heard a lot of talk about neoinsurers, who have made very interesting contributions in terms of product and customer experience.

The problem is that these new players are subject to the three market forces that condition our business model today. Demand is saturated in mature markets and isn’t taking off as expected in some emerging markets. Acquisition costs are similar for everyone in that we all compete in online channels. And claims and benefits costs are very similar for all insurers: repairing a windshield or covering an appendicitis operation costs a traditional insurer the same as a digital one.

So there’s no room for disruption in the insurance sector?

No, there is room. In fact, we’re already experiencing disruption. We’re seeing it in the companies that we have stakes in via the Alma Mundi Insurtech funds. The first level of disruption comes from the internal costs side, and that’s where we’ve observed operating models that are up to 10x more efficient, thanks to the use of AI, and from what we call straight-through-processing, which is the ability to do something like the processing of an end-to-end claim without human intervention. The second level of disruption comes, somewhat surprisingly, from traditional distribution, from offices on the street. Companies like wefox have shown that equipping agents with the right tools can boost sales, risk selection and retention. Again, we’re talking about the intensive use of data and AI. The third level of disruption is happening in the marketplace, whereby insurers can sell products from other companies, providing a comprehensive service to their customers without having to hold on to a risk that they don’t manage well. The concept itself isn’t new, but companies like Bolttech have leveraged technology to take it to an industrial scale.

Finally, what is the biggest challenge for a Chief Innovation Officer this year?

If I had to pick one, I’d say it’s scaling transformation. Corporate innovation teams left the lab a long time ago. Today we’re perfectly capable of transforming real processes and putting new products and services on the market. But the challenge comes when it’s time to scale. The market is drowning in apps and gadgets. Getting a digital service off the ground is difficult, even when the pilot results are very encouraging. And the same goes for our internal transformation: implementation in the first country is difficult but scaling to the next 25 is an order of magnitude more difficult. We’ve benefited more than two million customers over the last few years. Now we’re going after the other 28 million that we have.

Antonio Arias, Group Chief Innovation Officer at MAPFRE
Amsterdam 12-13 June

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