ARTICLE
Insurtech 3.0? Top 10 trend predictions for 2024 and beyond
With Dominique Roudaut, Operating partner/Innovation, MS&AD Ventures
Published: 12 February 2024
Dominique Roudaut takes stock of insurtech trends and predicts what is yet to come, forecasting how innovation activity is set to evolve in the year ahead and identifying the key factors that will make or break partnership and investment decisions.
Dominique Roudaut, Operating partner/Innovation at MS&AD Ventures
1.
Increasing optimization
Insurers can still improve their customer and employee centricity to be more efficient. There are many innovative players helping with optimizing underwriting, claims, distribution and governance from underwriting workbenches to the triage of claims before investigating potential fraud, waste and abuse to name only two prominent use cases. Generative AI is now applied to those use cases. There is still plenty to be done with augmented underwriting to help modulate commercial premium and for the most pioneer players define new risk premium across lines of business with regulators’ approval where needed.
Separating fad from fiction, do you foresee generative AI continuing to make waves into 2024 and beyond?
A few years ago, blockchain was the keyword. But it is not a trend unless it answers an actual acute problem, which could not be answered otherwise. It remains to be seen if Generative AI will provide incremental improvement of ways of working or if it will be more disruptive. In any case it is here to stay.
2.
Climate change & sustainability
Soft laws around financial disclosure for ESG morphed into more pointed reporting frameworks for climate (TCFD) and biodiversity (TNFD) comprehensive with double materiality assessment and risk quantification for varied climate scenarios. Hard laws are now coming to effect around the world often aligned with such frameworks, with the EU leading the way. It calls for solutions to help insurers and their policyholders to assess their own environmental footprint, integrate ESG into underwriting and insurance processes and update existing pricing and cat models to climate change scenarios. There is a lot to be done to help insurers better analyze the risks of alternative source of energy, promote regenerative agriculture and insure the transition to a decarbonized economy.
In what ways is insurance uniquely positioned to be a force in driving the green economy forward? Are we likely to see an explosion of climate innovation in the insurance space?
Insurance is a keystone industry, just like some species are considered keystone, since without them an ecosystem is out of balance and cannot thrive. Insurance helps unlocking finance. And we know the climate economy requires closed to a trillion of investment a year by 2030 according to UNEP to meet up its challenges. New insurance solutions have emerged notably around carbon credit or restoration of damaged ecosystem. So much more is required to address climate, biodiversity, energy, agriculture and building materials innovations. An explosion of solutions would be opportune. But I expect, rather, a slow ramp up as regulation becomes more stringent and data for risk analysis becomes more available.
“Insurance is a keystone industry, just like some species are considered keystone, since without them an ecosystem is out of balance and cannot thrive”
3.
Digital risks, cyber & AI insurance
As regulation in the USA and in the EU are shaping up, the use of AI would be forbidden for some activities (EU) and would engage the liability of any given company notably around HR decisions (USA) and beyond (EU). It calls for solutions to test, guarantee and insure the robustness, accuracy, bias free and security of varied AI models. We expect AI insurance to become a new line of business like cyber became distinct of liability in the coming years. Affirmative cyber insurance, prevention, risk assessment, quantification and post event response remain needed to improve LR and better curb systemic risks. Loss of virtual assets notably in gaming remains a multi-billion USD opportunity to tap into as well as risks stemming from digital reputation.
4.
Embedded insurance & digital ecosystems
Embedded distribution is already under way, but an ecosystem approach remains an exception. Interesting solutions revolve around the tech stack across ecosystems, gathering data, delivering analytics leading to personalized straight through processing, no questions asked, throughout ecosystems.
5.
Predict and prevent
The protection gap is increasing notably in health, digital risks and property nat cat. Withdrawing from entire States like many property insurers did in the USA is not a long-term answer. Many innovative players provide early detection, prevention, mitigation and risk assessment to better empower end users, protect the Loss Ratio and identify better risks within aggravated exposure areas thanks to more granular analytics. It remains to be harnessed at scale to narrow the protection gap thanks to promoting resilience solutions rather than merely risk transfer.
“The protection gap is increasing notably in health, digital risks and property nat cat”
6.
Life and Health
A lot has been done to improve engagement, prevention, conversion and retention. It remains to convert into actual personalized risk pricing at scale. Operations require still better digitization. Biotech remains untapped to further personalize care, prevent and risk assess. 90% of the USD 4.1 trillion annual health care expenditures in the USA are dedicated to chronic conditions, loading Loss Ratios. Whereas innovative players provide valuable solutions to early detect, prevent and better manage those medical conditions from diabesity to heart conditions, cancer, cognitive degenerescence and mental health.
7.
Entering a new era of mobility
Mobility is a growing line of business all over the world with the fleet GPW notably poised to grow by around 10% from 2021 to 2028, while still presenting challenging Loss Ratios all over the world. Many solutions are available for fleet and consumer auto notably around engagement and prevention. But it remains to be scaled to embrace its potential across the mobility value chain from nudging driving behavior to personalizing premium to driving style, refining reserve assessment, save on claims operating expenses and better manage network of body shop while improving customer satisfaction.
8.
Parametric
Parametric helps addressing two problems. It provides additional capacity and better user centricity not only for commercial but also consumer and health. As a result, the parametric market size is expected to be on par with the cyber insurance one by 2030. Solutions are welcomed for digital risks, outages, performance risks, supply chain, contingency business interruption and consumer insurance notably.
9.
Evolving business models
I touched upon it above with embedded distribution and ecosystem and insurers moving away from pure risk transfer to embrace resilience. Private Public Partnerships is another venue poised to grow to better face systemic risks. None of it is new, but they remain to be scaled and applied to more problems as we face growing geopolitical tensions and trade disruption.
How is the relationship between insurtech’s and incumbents evolving? Are disruptors set to be a thing of the past?
The first wave of insurtech aimed at being disruptive. And it was in terms of user experience, but not so much in terms of product and pricing. And it still needs to make a profit to be sustainable. The second wave focused more on partnerships between incumbents and newcomers with growing pains from both sides. In my view it is seldom either or. The market needs both. There are enough problems/opportunities as detailed above to fuel disruption and partnership.
10.
Changing customer behavior
The gig economy – digital nomads are an example of new behaviors requiring their adapted services and insurance. The same can be said about the second hand products part of the circular economy and riding the digital product passport program of the EU. Food security and population migration would also trigger new behavior calling for a range of services and resilience solutions.
What about web3 and the metaverse? Have these trends been left in 2023?
Metaverse and Web3 were higher on the agenda a few years ago in terms of potential largely unrealized to this day. But as law enforcement is investigating its first case of virtual rape, which will shape regulation around the risks and opportunities of the Metaverse, we can expect insurance development.
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