This is the first of two Predictions features looking ahead to 2023 and let’s be honest, insurtech is at a crossroads. Not just in terms of funding and finance, where some very hard questions on profits made thus far, partnerships, market share and growth are going to be asked, but also on the USP value, the brand IP if you like. How is that to be developed, how is the funding going to define an insurtech SaaS or data specialist start-up as quintessentially separate from the pack?
Then there is the question of an inflation cycle and possible recession-hit market. Sure, there will be pockets of growth across insurance globally. Necessity is a great driver of demand. But as inflation hits business and consumers alike in 2023, insurtechs will need to be on top of their marketing game to not only survive, but thrive. Dangerous times force people’s hands, tough decisions will have to be taken and some of the layoffs we have seen already in big tech like Meta, Twitter and US media networks will have a ripple effect in the cosy world of previously well pampered London insurtechs. Hard times, hard won profits.
Let’s get into it.
OVERVIEW
Bart Patrick, Chief Revenue Officer at Genasys Technologies is known across the sector for strong insights, so we will start with Bart;
A number of factors will influence insurtech in 2023. Firstly, it will be a much tougher environment for attracting investment. Providers will need to show they are making money rather than simply demonstrating growth and this will test the fundamentals of many businesses. As such, it’s likely to be something of a Darwinian, “survival-of-the-fittest” period, with some of the more financially-tenuous players likely to suffer.
Insurers will also become more cost-conscious as they seek to protect their bottom-line and keep premiums affordable. As the recession bites and costs of claims rise, there will be intense scrutiny on the stubbornly high cost of operations – and many executive boards will increasingly question the wisdom of expensive technology delivery programmes that never seem to end.
Growing financial pressures on consumers meanwhile will drive product innovation, as insurance providers look at scaled-back ‘value’ products to meet changing demand. This will throw up a particular conundrum for insurers with complex legacy systems: how to successfully bring these new product lines to market without incurring hefty digital development costs you can no longer afford.
The result? As pressure on digital spend increases, the ability to “scale down” digital transformation will be an essential discipline. We’ll see more emphasis on discrete digital projects that can demonstrate a return on investment within a year or 18 months, and even among the largest providers the appetite for high-risk, multi-year digital programmes will be significantly reduced.
Yet there will be opportunities too. 2023 will belong to nimble, cost-effective, readily integrated products that allow insurance companies to respond quickly to changing customer needs without burying themselves in the cost and complexity of making wholesale changes to legacy systems.
Though the bar may be set higher, the door will remain open for genuinely innovative, value-bringing technology solutions to flourish.
OVERHEADS, ROI & VALUE
Alex Zukerman, CSO at Sapiens sees cost reduction as a top priority;
In 2023, cost reduction will be paramount – where is the fastest ROI? What insurtech services add immediate value? Accordingly, insurers will strategize ways to automate claims and supplier management processes amid inflationary pressure. In the commercial space, insurers will seek opportunities to disrupt traditional insurer-customer-broker relationships and reduce distribution costs.
Technological adoption will also proliferate. The benefits of insurtechs will span the value chain, as insurers pursue the self-sufficiency of no-code tools, which enable them to configure products, add data sources, accelerate API’s, and inject insurtech into the workflow. Tools like tri-party arrangements, which address customer, insurtech, and digital core policy administration, will move digital services from IT developers into the hands of the business users. Speed to market, customer service personalization, and new product launches will all increase in turn.
Finally, a multitude of new data insurtechs promise increased data granularity – more data, less cost. These range from AI image recognition for property attributes, to vehicle damage recognition and cost assessment. The shift from static data to dynamic data updated in near real-time will improve processing, parametric and guided applications, and claims.
Of course the flip side of the costs coin is that it offers an opportunity for insurtechs to solve problems for the bigger brands. One being the cost to acquire new customers. Ifty Kerzner from Kissterra sums it up;
2023 will bring a challenging market for insurers as customers try to reduce costs by turning to new providers. Insurers will have to be much more attune to using data as a way to attract the best possible customers at the best possible price. In an industry built on differentiation, insurance carriers will need to differentiate how much they spend to acquire each individual policyholder, allowing them to purchase customers with direct correlation to expected LTV, thus ensuring profitability.
Insurers that master the use of data in their marketing and target potential customers most accurately will have the upper hand over their competitors. Utilizing first party customer data for example, will allow insurers to take an innovative approach to create targeted marketing campaigns that are guaranteed to engage the right customers at the right price that will convert into long-term, high LTV relationships.
CLAIMS INFLATION
The cost of settling claims is rising and no psychic powers are required to see that Globalist organised inflation will acclerate in 2023. Solutions to the problem include AI and automation and one area where the gains can still be made is in complex claims involving law firms. Here’s some thoughts from Damien Rourke at Clyde & Co Manchester;
Today, it’s possible to segment insurers into three broad groups: those who are starting to think about the journey down the path to automation and AI; those fully onboard and able to engage; and those so advanced, they are already engaged and beginning to explore data and its meaning at an increasingly granular level. What this means is that the traditional one-size-fits-all-technology produced by law firms no longer works. Today, law firms need to be much more collaborative and recognise that each insurer is at a different stage of their technological journey.
In 2023, law firms can no longer hand over finished claims processing technology to a client like Father Christmas handing a present to a child. The need is for law firms to spend more time face-to-face with claims teams understanding their needs and the way in which they want to work. How, for example, can we integrate without forcing clients to change their workflow or force them to log in and out of multiple systems. How can we address their increasingly sophisticated management information needs? It’s these conversations that will drive the direction of law tech innovation in 2023.
FUNDING, GROWTH AND NEW OPPORTUNITIES
It’s a positive view in general from Jason Keck, (pictured) Founder at Broker Buddha in the USA;
With the recent market downturn, VCs have been hesitant to invest (and more discerning when they have), but that will change when the new year arrives. There is no doubt that the bar is higher for new companies to get funded. This means that VCs with dry powder are looking to invest in companies with qualified traction and have the potential to distinguish themselves from competitors to become category leaders. Founders with good product-market fit, a solid go-to-market strategy, and a sizeable TAM will be in demand.
Any company that has raised a Series A, B, or C round in the last three years has benefited from a hot market and is likely overvalued given the recent downturn. Those companies are struggling to justify their valuations and any new funding round will likely be a flat or down
round. This makes Seed stage companies with reasonable valuations looking to raise their A rounds a great target.
Seed Stage InsurTechs with qualified traction are in a great position to raise capital in Q1. What better industry is there to do that in than insurance? With $290 billion in committed capital, VCs are going to look for investment opportunities in 2023 and InsurTechs will have an advantage. We expect to see an infusion of capital at the Series A level in the coming months.
Meanwhile at INSTANDA, CEO Tim Hardcastle sees plenty of demand driven opportunity ahead next year;
We anticipate 2023 will continue driving digital insurance transformation, particularly in these four areas:
1. Reducing The Constraints of Legacy Systems As no-code technologies mature, the heavy resource cost of legacy systems is exceedingly apparent. More insurers will replace or augment legacy systems with new technology, enabling better customer experiences, faster time to market, and lower operating costs.
2. Harnessing Healthtech Life and Health is ripe for disruption through technology. Progressive insurers like Vitality already incorporate healthtech products such as wearables. Healthtech can motivate customers to build healthy habits while increasing underwriting and pricing precision. In 2023, more insurers will adopt healthtech to better products and experiences.
3. Offering Hyper-Personalized Insurance Data-driven hyper-personalization will see further adoption in 2023. Providers will use big data to analyze patterns and predict products and services consumers need. InsureApp does this today, creating personalized insurance using smartphone sensors and IoT devices.
4. Transforming Customer Experiences Insurers will rise to meet increasing customer expectations in 2023. Building creative and comprehensive ecosystems of services will enable insurers to create streamlined products and journeys with real-time data sources – such as location for travel insurance, or health status via wearables.
2023 is bound to bring seismic, tech-driven shifts to the ever-resilient insurance industry. Insurers need to be ready with a flexible digital strategy to make the most of what’s in store.
SMARTER DATA ANALYTICS
Isabelle Clausner Vice President, Client Executive, Southern Europe at Xceedance, sees rising demand for smarter data analytics across every aspect of the insurance cycle. In a time of recession, that makes perfect sense as insurers and brokers will need to spot where the big margins are, whether we are talking profit or loss.
Most insurers that invested in Data Analytics (DA) solutions have struggled to see their impact. This is due to a combination of factors linked to their internal organisation structures. DA solutions are frequently not fully embedded within the business teams and processes, resulting in an overall lack of company-wide vision and strategy.
As businesses start to understand and address these shortfalls, however, we can expect an increase in DA solutions throughout the insurance value chain.
Continued widespread usage of Artificial Intelligence (AI) technologies will increase the volume and type of data collected and available to insurers, which will lead to improvements in the customer journey. Beyond that, DA solutions will support the internal processes to a greater degree. Underwriting, for example, will increasingly move away from the current manual, labour-intensive processes to a more automated, AI-driven data extraction and ingestion workflow utilising both structured and unstructured data. Predictive analytics tools will enable a more forward-looking view of exposures and evaluate the impact of change on an insurer’s book of business.
At Xceedance, we are seeing an increasing number of market players looking for guidance on both how to extract and pull various sources of data, both internal and external, together and how to develop AI-backed tools to support a more efficient underwriting process with real-time analysis. Supporting market players to centralise data will be key in 2023, as will having the right architecture and infrastructure in place (and integrated into workflows) to analyse the increased volume of data.
BLUEPRINT TWO
Stuart Favier, Client Manager, Northdoor plc looks ahead at Lloyd’s Blueprint Two
“Although the deadline for the large-scale changes for Blueprint Two has been pushed back to the end of 2024 it will continue to dominate the Lloyd’s market in the next twelve months. Since the release of Blueprint Two in November 2020, the third instalment of the ‘Future At Lloyd’s’, transformation programme, organisations operating within the market have been looking at ways to digitise the way they do business.
As an ambitious plan, Blueprint Two sets out to build the most advanced insurance marketplace in the world. It aims to make the market work faster and become more competitive and cheaper. In order to take full advantage of this digital marketplace, insurance organisations will need to invest time and money as they build and deliver appropriate, relevant and adaptable solutions that give real benefit to their organisations and customers.
The financial pressures that will impact us all in 2023 will impact how quickly these plans can come about. Indeed, some have highlighted inflation as the Lloyd’s market’s second biggest challenge after the Russian/Ukrainian war. However, the 2024 deadline aside, the digitisation of the Lloyd’s market has to happen soon if it is to remain competitive in an increasingly crowded market.”
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