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The five pressing challenges facing insurance today – and the insurtechs that can help

Written by Roger Peverelli and Reggy de Feniks - Founders The DIA Community on Oct 2, 2023

NTT Data’s report “Insurtech Global Outlook 2023”, covers the five top challenges and opportunities for insurers in 2023. According to NTT Data, the insurance industry is being pushed to an unprecedented level of change, where tech innovation is inevitable. We sat down with Richard Calvo López, Head Insurtech at NTT DATA EMEAL, to talk about the transformation of the insurance industry, the five top challenges and opportunities that this brings and which insurtechs are leading the way in addressing these challenges.

Why do you think 2022 has been challenging for insurtech investments?

There are four reasons – first of all: fundraising has gone down. The total investments have gone down and there is a decline in the total number of deals. Secondly, there is a decrease in valuations. Deal values have dipped over 30% which results in a dramatic reduction of the number of new unicorns. And thirdly, performance. Public insurtechs have seen a collapse in share prices and deal with unsustainable underwriting rations. And finally, because forced downsizing results in layoffs, there is a reputational impact.

How is 2023 shaping up, are you seeing things improve?

I would like to remark that even in these tough times, the Insurtech market is still attracting around 8 billion dollars of investments across 470 deals, becoming and making this the second-best period for investments by far. And additionally, we also observed several insurtech companies that experienced rapid growth and had very positive results. This indicates that insurtechs are still helping the industry to face these challenges that are really complex and unpredictable.

If you look at the graphs, you can see a correlation between investments and line of business. If you look at traditional business lines, such as Life, Home, and Health the fluctuations are in line with the global market reaction during for example the pandemic and the current uncertain times, which makes the investment graph shape like the letter M. But non-traditional business lines like parametric insurance, remote health data management systems or retirement services, for instance, experienced the opposite behaviour showing more consistent growth and a W shape.

What type of technologies are experiencing the strongest growth?

There are three technologies that are leading. 1. API integration platforms are designed to facilitate embedded insurance models or to enhance operational efficiency. Investments increased by around 62% in 2022, with an impressive accumulative investment growth of around 500% since 2019. 2. Predictive analytics also grew 70% of investment in 2022 and an impressive accumulative of around 200% since the pandemic. 3. Health diagnostics related to prevention, diagnosis or interoperability of platforms in health are also experiencing this important growth of over 200%.

How are insurers reacting?

Insurers are now also shifting their investment activity to the initial stages, which helps them to explore new emerging demands and markets. For instance, cybersecurity, new mobility services or energy transition. Also, they keep being committed to traditional distribution to simplify life insurance and create affordable health insurance plans. Finally, insurers strongly focus on companies with very powerful products based on data management and data governance throughout the entire value chain.

Can you tell us a bit more about the NTT Data report “Insurtech Global Outlook 2023”?

At NTT DATA, we want to inspire and help organizations to take their business challenges and priorities through our analysis and our annual insights. We have been observing the transformative power of insurtechs since 2016. First, we started out researching investments in pioneering startups and the impact of emerging technologies and business models. We’ve now moved to comprehensively and holistically analyzing evolving customer demands. Four forces that are shaping the insurance industry are insurers, insurtechs, tech giants and regulators. Today, this industry has to deal with pressing challenges, and companies are forced to tackle them. Luckily, insurtechs can help face these challenges.

In the report, we mention a few insurtechs that are on top of their game, helping insurers navigate through these challenges. What makes them stand out? 1. They are attending to fast-growing demands in underserved markets and creating powerful value propositions. 2. Behind this is of course a great product and purpose. 3. They are onboarding talents that are specialized, not only in the business but also in the practices. 4. They are open to collaboration and acquisitions. 5. They have a strong go-to-market strategy.

Can you remind the readers which five pressing challenges the industry is facing today, as described NTT Data’s report?

The five pressing challenges are 1. Sustainable world related to climate change, 2. Distribution related mainly to Embedded Insurance, 3. Digital risk, related to cyber security, 4. Next-level underwriting and 5. Companies that care related to corporate well-being programmes.

The protection gap in climate change-related issues is huge. In 2022, there were 300 billion in losses related to natural disasters and 200 billion were uncovered. According to the AXA Future Risk Report 2022 climate change is the Top risk among the global top 10 emerging risks. Today, analyzing the weather in real-time is possible and is even more accurate than historical data in preventing risks.

We know that embedded insurance proves to be efficient to increase sales and revenues without a significant price change in distribution. In fact, it’s the distribution channel that is showing the strongest growth. Over the last few years, we also have been seeing a notable shift towards a B2B2C strategy from insurers, partnering and collaborating with entities to distribute their products through their proper customer journeys. Today, technologies are rapidly evolving and meeting these market demands with agile platforms and infrastructures.

Cyber is the second highest emerging risk for insurers. Since 2019, cyber-attacks have increased 50% year over year. The last IBM report shows that in 2022, the average cost of a data breach was around 4.5 million dollars. Also, the lifetime is 230 days for the identification of a data breach and 60 to 68 days to contain it. Unfortunately, organisations today are still poorly covered for cyber security threats, because they lack security and have a limited data breach history.

I would say that underwriting is probably one of the hottest topics and the top concerns of insurance companies today. Today, 70% of insurers are increasing their investments in data management tools to gain more accuracy in risk profiling to allow for further personalization in service and products. Also, for example UBI models can result in smoother customer interaction and customer loyalty.

The topic of ‘companies that care’ revolves mostly around the customer instead of the insurer. Since the pandemic, we are immersed in a total global reset of priorities. Now health and well-being, financial protection, social purpose related to the environment and so on are ‘new’ concerns, that companies need to address.

Can you give us some examples, of insurtechs that are on top of their game helping insurers navigate through these challenges?

Sustainable world – Descartes

They are making a big effort to integrate new data and new technologies into one solution. Their partnership with Iceye, the largest constellation of satellites, allows them to have high-resolution observation data for more precise and timely measurements of catastrophic events. It makes it easier to find reinsurance parties and they onboarded over 100 data scientists specializing in climate-related topics.

Descartes is leveraging these capacities, technologies and talents to create a positive impact for customers. For instance, moving from months to just days in claims resolutions and payments. Plus, thanks to parametric conditions and agreements, they can simplify the complex coverage of climate-related insurance and make it more transparent.

They focus on distribution, helping brokers even develop a capacity to cover around 200 million per contract which allows them to subscribe larger and even complex businesses that for insurers are too risky or not profitable enough.

Distribution – Cover Genius and Bolttech

Cover Genius and Bolttech stand out for their ecosystem-ready-strategy. For instance, they are operating in hundreds of markets across all regions, holding hundreds of licenses to operate. They are partnering with hundreds of carriers, selling millions of policies with a constant customer growth of around 200%. So it’s super easy for an insurer to decide to do business with them.

They have attractive customer acquisition growth and increased conversion rates, which signals that this is not only about the convenience of distributing products or purchasing products at the point of sale, but that they are also adding relevant protection to the policy purchases.  They are also good with post claims, with an NPS of over 65. They offer 24/7 support, covering 40 languages and a five-time quicker ticket response with claims payments in just over two business days in over 90 currencies.

They have access to huge amounts of data from different insurance careers and different partners from retail, banking and travel, which helps them to create flexible and total personalization of products, creating a product catalogue of over 6000 products.

Digital Risk – Cyber Safe

Cyber Safe has built their value proposition based on how to influence customers to tackle cybersecurity topics in a totally different way. They are doing this with simple things like real-time security nudges, such as security alerts in the moment that matters the most, when a vulnerability is detected. They also integrate security awareness into current solutions and tools such as Microsoft Teams or Slack.

And, they are onboarding talent from psychology and neuroscience, combining academics with real industry experience, so they don’t have to wait for months or even years to create and apply cutting-edge research.

Next-Level Underwriting – Qumata

Qumata enables insurers to create a totally different customer experience and risk management in Life insurance, based on health-  and activity data, avoiding long questionnaires. They create simple and affordable products in emerging markets, which allows them to traction their products, but also to collect important data for accurate risk assessment. This allows them to speed up the underwriting process from days or weeks to mere seconds.

Companies that Care – Betterfly

Betterfly is a solution for HR leaders and is moving in a natural way from B2C to B2B2C.  Betterfly’s approach to employee well-being rewards good habits with life insurance coverage that grows every day and converts every healthy activity into a charitable donation. Betterfly prioritizes prevention and well-being. Life Insurance comes ‘later’, making Betterfly more customer-centric and redesigning its offerings to provide more value to customers.

Richard Calvo López, Head Insurtech at NTT DATA EMEAL
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