Insurtech is big business. As an industry, it has grown exponentially over the last decade.

In 2020, investment in global insurtech companies topped $14.5 billion, according to industry estimates. This year alone it peaked at a quarterly high of $2.55bn in Q1.

Most of the sector’s major businesses have at the very least, started a digitalization program, either through incubators or accelerators, or direct investment. In the insurance sector’s most radical shake-up yet, this cutting-edge technology is transforming the entire market, from product innovation, data analysis and pricing, to distribution and claims.

In the scramble to keep pace, companies are moving faster and further than before. Hippo Insurance, for example, provides a homeowners policy quote in 60 seconds via its website as well as a free smart home monitoring system, a premium discount and a “dedicated claims concierge”.

Traditional market pushback

Despite all the obvious benefits and efficiencies insurtech brings, the start-ups driving this technology are often viewed by traditional insurers and brokers as direct competition. This is evidenced in a recent PwC survey, which found that nine out of 10 participants were fearful of losing business to insurtechs.

By streamlining the insurance cycle and providing solutions direct to the end user, the technology is seen by some as reducing the intermediary’s role.

In reality it does the opposite – by freeing up brokers to focus on the advisory and value-added services that deliver real benefits for their clients.

To really reap the awards of technology, however, the insurance industry needs to focus on increasing its investment in technology. This is particularly true when compared to the take-up of fintech in banking, for example.

Working in partnership

Instead of viewing insurtech start-ups purely as the competition, traditional insurance sector entities need to work more closely and in collaboration with them. As broking or underwriting businesses are risk rather than technology specialists, they need to partner with insurtech and use its expertise to develop and adopt technology.

This will enable the insurance industry to stay on the cutting-edge, creating new and innovative solutions faster, and driving better customer outcomes. It will also keep them one step ahead of technology giants such as Google, Facebook, and Amazon all of which have indicated they are looking to enter the sector.

Integrating insurtech across existing insurance ecosystems

A key application for insurtech is in loss prevention, which ultimately enables underwriters to price risk more accurately and deliver a better product to the client. For example, smartphone technology can be used to monitor driving movements and speed, with the data that’s collected being analyzed and then used to change road safety behavior. This approach is particularly valued in businesses running fleets of vehicles, which are growing exponentially with the move to online shopping accelerated by the pandemic.

Many of these loss prevention innovations are being created in Silicon Valley, California where, Brian Hetherington, Chairman of The ABD Team and Treasurer and Board Member of Worldwide Broker Network (WBN) has built a growing broking business with a specialism in serving tech businesses. He says, “Prevention as a tool is the best medicine. The more information you have about a risk, the more chance you have of preventing it causing an accident in the first place.”

At the other end of the insurance chain when a claim is made, insurtech can also play an integral part in responding quickly and efficiently. For example, cameras in a Tesla vehicle record what’s happening so if there’s an accident, they can be used to identify who was at fault and the claims process can start immediately.

Mobile apps are also being used by delivery drivers, allowing them to report accidents and make claims instantly.

So already, today we are seeing real life examples of technology being used but we need to ensure that new ideas keep coming forward and can be efficiently integrated into the insurance value chain.

Insurtech investment

All these new innovations, require substantial investment and testing. Leading the way in this is Israel with its entrepreneurial and technology savvy talent pool.

A shining example of such product development is Madanes Insurance Agency, the country’s largest independent insurance broker and WBN member. The company has invested in multiple insurtech start-ups. By investing in these businesses, Madanes is bringing together its 50-year history in the insurance sector and combining it with the latest technological expertise which often comes from young entrepreneurs full of digital understanding but who lack industry experience.

Two of Madanes most significant investments have been with Kovrr and Parametix, both of which have been tested extensively in Israel.

Kovrr enables underwriters and risk managers to better understand, quantify and handle cyber risk. By providing invaluable data on such exposures, it also allows insurers to more accurately price risk and manage their portfolios.

Elad Nave, Vice President, Reinsurance, at Madanes, said: “Kovrr’s risk modeling platform gives global re/insurers and their clients transparent data-driven insights into their cyber exposures. It’s designed to help everyone from underwriters to chief risk officers financially gauge, get to grips with and manage risk more effectively.”

Parametrix offers coverage to online businesses that suffer network downtime. Leveraging precise monitoring systems and risk aggregate calculations based on in-depth actuarial and data science expertise, it uses specific triggers to pay out claims.

Nave added: “Parametrix is for firms that sustain a disruption to their network and can’t continue their online activities. In the event, the coverage is automatically triggered, and they receive a payout.”

Where ILS has led the way with the development of solutions for catastrophe risk via parametric triggers, start-ups such as Parametrix are building on this work and leveraging it to bringing this underwriting tool to the general insurance space.

Role of the broker

Because of their expertise and knowledge of the technology as well as their deep relationship with the client, brokers are best place to identify and explain the benefits that an insurtech solution can bring.

“Traditional insurers and brokers need to adapt to this new world of insurtech, and fast,” said Nave. “They have a pivotal role to play in helping to invest in and more quickly develop these new technologies, thereby enabling them to provide the best insurance solutions for their clients.”

The technology, in turn, enables brokers to place and structure policies more efficiently as well as improving the quoting and binding process. This therefore allows them to concentrate instead on their core business of developing key client relationships and understanding their risks more fully.

“Insurance agents - are the present and future of distribution,” said Hetherington. “But in order to remain relevant they need to leverage the use of technology and automation, apps, and connected processes through the internet of things and blockchain, as well as keeping abreast of the latest trends, developments and solutions available in the space.”

Rather than diminishing the broker’s role, insurtech can be used in conjunction with technology to complement the offering. Only by leveraging the technology can brokers stay on the cutting edge and keep delivering the best solutions for their clients.