InsurTech Reality Check: "Pie in the sky" or driving actual ROI?

by Bret Stone on July 23, 2018

If you’ve got your eyes set on technology that won’t move the needle this year, it’s time to reevaluate what can provide bottom line results in the short term. AI and machine learning will have their day in commercial insurance. But what are you doing today to drive tangible business results? InsurTech does not have to be a “pie in the sky” endeavor. It can be deployed right now.

Just a year ago, the InsurTech conversation was all about innovation labs, blockchain, IOT, wearables, and, of course, AI. Now, the dust has settled a bit and the realization has set in that those bright, shiny objects may take years to make a real impact on re/insurers’ bottom lines. While they are still undoubtedly vital to innovation, long-term success, and survival, it’s important to strike a balance between “pie in the sky” and practical. Last year’s devastating catastrophes served as a catalyst for more focus on short-term solutions that can positively impact bottom lines—now. Not years from now. This swing to here-and-now solutions was recently articulated in an article by Ilya Bodner, founder of InsurTech startup Bold Penguin, where he notes:

“InsurTech is moving rapidly now into commercial lines where the attention and intent is focused on solutions that will deliver a strategic and immediate return on investment (ROI)....Insurers are moving away from bright, shiny, InsurTech objects, and toward service partners, emerging technologies, and solution providers with a return on investment more immediate than promised for five years down the road.

I second this sentiment. As an InsurTech, SpatialKey’s roadmap is deep and we always have an eye on the future. But, that excitement over bright, shiny objects needs to be tempered with a view of reality. The reality is that P&C risks are changing with 2017’s $144 billion in global insured losses and a commercial lines combined ratio of 103.8 percent. The next hurricane, flood, or wildfire won’t wait for you to innovate. Insurers must find ways to bring innovation to their bottom lines now. Don’t get me wrong, pie in the sky is good—and it is necessary. But, insurers must strike a balance between their long games and short gains. You need both.

Caution: The hard truth

I don’t have to tell you that following last year’s back-to-back hurricanes there was an outcry about how the models got it wrong (of course, it didn’t help that some modelers put out early and grossly inaccurate estimates that incited market confusion and concern). Here’s the hard truth: Insurers also got it wrong. Got it wrong by using a single view of risk; by not taking advantage of innovations in data; by taking too long to operationalize data; by waiting for the perfect, utopian platform (in-house or commercial) to be built or delivered; by expecting legacy analytics software to deliver the scalability, reliability, and insight required to act efficiently and effectively. No longer can insurers approach risk The. Same. Old. Way. Risk is changing. You must change with it. And the good news is, integrating InsurTech in a way that helps you better assess and manage the evolving landscape of catastrophe risk doesn’t have to be time consuming or costly, and it can produce immediate tangible results.  

Here are a few real-world examples:

Reality: Models provide a “framework for thinking; they don’t represent truth.”

Evan Greenberg, Chairman and CEO of Chubb, recently boldly stated, “Given there have been three one-in-100-year floods in 18 months, how can Harvey represent a 1 percent chance of occurring as the models suggested? Models provide an organized framework for thinking; they don’t represent truth.” Now, we all know models serve an important purpose, and our clients can derive insights from modeled data within our platform. But, models must be taken with a dose of good old-fashioned human judgement. It’s just a fact, models and the outputs are nuanced. It’s all about identifying the right models and model components that best represent your lines of business, geography, and business practices. But, it’s also about balancing resources and business value with this expensive exercise.  

A solution like SpatialKey enables you to step through methodology, have an intelligent conversation about model nuances—and figure out the “so what” questions that models provoke, but don’t answer. Taking a holistic approach to understanding and managing risk using combined methods will yield better results than managing solely to a “number.” A catastrophic event, such as Hurricane Harvey, expedites the need to evaluate footprints for “truths” and uncertainties, as deriving insights is extremely time sensitive. During Hurricane Harvey, our clients had access to event footprints for wind, surge, and inland flood as they became available from data providers like JBA, KatRisk, Impact Forecasting, and NOAA. These up-to-date, multi-peril footprints, coupled with our financial modeling, could be evaluated and compared in real time helping our insurance clients understand potential exposure.

Or, consider the California wildfires. Sustained winds caused the California wildfires to strengthen and spread, yet some incumbent models didn’t account for smoke and wind-driven embers. RedZone’s data does. That’s why we work with this innovative data partner to help insurers gain a more comprehensive perspective on wildfire risk. Understanding what factors go into scoring this type of risk is critical to underwriting accuracy. Many of the California fires were areas identified as low to moderate risk. Using RedZone may have informed better decisions and saved companies millions.

you can't handle the data

Reality: You can’t handle all the data. 

There’s a gap between the wealth of data now available and an insurer’s ability to quickly process, contextualize, and derive insight from that data. Insurers are generally frustrated by a lack of process and an easy way to consume the frequent and sophisticated data that expert providers put out during events like Harvey, Irma, Maria, the Mexico City earthquake, and the California wildfires. Beyond the sheer volume of data, insurance professionals are expected to make sense of it by using complex GIS tools. In reality, you have all this data, but no actionable information because you can’t effectively makes sense of it. Even insurers with dedicated data teams and in-house GIS specialists struggled to keep up. SpatialKey solves this problem by enabling expert data from disparate sources (e.g. NOAA, Impact Forecasting, JBA, KatRisk) and putting it into usable formats that insurers can instantly derive insight from and deploy throughout their organizations. We do the processing work, so our clients can focus on the analysis work.

Reality: Your best data is your own, but you’re not benefiting from it.

It’s one thing to be in possession of data, and quite another to be able to realize its full value. Data alone has little value and that’s why we work with insurers to help them maximize the insight that their own data holds. For example, one of our clients wanted a way to re-deploy their own data to their underwriters. They looked to SpatialKey to help them integrate an underwriting solution that would put their data, along with expert third-party data, in the hands of their underwriters—all from a single access point that would consolidate disparate sources and drive enterprise consistency. And, they wanted to integrate it without interruption to their existing underwriting process. Today, they are, in their own words, “unequivocally better” because they’re able to tap into the wealth of insight their data holds—as well as exploit external data sources—all from a centralized system, helping to drive consistency and accuracy throughout the organization.

Reality: Your customers expect on-demand, you should too.

Your customers don’t want to wait for a quote or go through a lengthy process to submit a claim. Our society is instant everything, and while commercial insurance may not be held to the same real-time pressure as personal lines, it is moving in that direction. When you need the latest hurricane footprint, you need it now, not four hours from now. When an earthquake strikes Mexico City, you need to understand your potential business interruption costs today. When a volcano is erupting and no drones are allowed in the surrounding airspace, you need a geospatial analytics solution that can help you provide advanced outreach to insureds and do the financial calculations to understand actual exposure. Likewise, when your underwriters are trying to win business, you’d rather they spent their time evaluating the risk than searching for information. Our clients look to us to help them inform their understanding of risk in the here and now. During last year’s hurricanes, we pulled in 50+ ad-hoc datasets from expert providers like NICB, KatRisk, JBA, Atkins Global, Impact Forecasting, NOAA, and a host of others. That is not pie in the sky, that is InsurTech in action.

Who knows what this hurricane or wildfire season will hold. The question is, are you prepared to handle it better than last year? What changes have you made to strengthen your resilience and that of your insureds? What has been learned and applied for meaningful results? It’s a misnomer that InsurTech and disruption go hand in hand. Some InsurTech solutions are built to complementto drive efficiencies, cost savings, and underwriting profitability—not necessarily replace existing processes or legacy systems. Data and analytics is an area where insurers, brokers, and MGAs can still positively impact their bottom lines yet in 2018.

Take down the pie and dig in

My intention is not to dilute the importance of up-and-coming InsurTech technologies, like AI and machine learning. They will undoubtedly help insurers compete as risks become more complex. My point is that those longer-term technological investments must be tempered with an understanding of what technologies will help move the needle in the present. You can strike a balance between pie-in-the-sky InsurTech and InsurTech that works for you now.

We’re excited about the innovations happening in data and analytics that will help insurers enable, enrich, and analyze data at a whole new level, such as our automated event response initiative which provides notification when an account or portfolio has been impacted by severe weather. And, we’re energized by the collaborative work that we’re doing with our insurance clients, and other solution providers, to help solve the real problems insurers face every day. Data and analytics is a core area where insurers can drive immediate bottom line results. So if your pie is somewhere in the sky, perhaps it’s time to aim for one that’s a bit more within reach.

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Topics: insurtech, insurance technology

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