EXCLUSIVE: “2023 – The Year Ahead?” in ‘The Insurtech Magazine’

We asked industry insiders and friends of The Insurtech Magazine to give us their best guess as to how things will pan out over the next 12 months

MATTHEW GRANT, PARTNER AT INSTECH

KEY TAKEAWAY: No one’s handing over the underwriting pen to a machine this year [but] ChatGPT could fundamentally change the nature of risk assessment

2023 will see the survival of the fittest. Seven years on from when the term ‘insurtech’ was coined, Darwin’s law of evolution is starting to play out in insurance. Successful startup survivors have set investors’ expectations through cautious optimism and are now evolving into established scaleups with real customers, revenue and validated products. On the other-hand, some of the companies that promised large and fast returns in order to raise very large (in excess of $100million) funding rounds, or those that went to the public markets early through an IPO in 2020 or 2021, will have to work very hard to keep up with their investors’ expectations.

Not all will survive. We’ll be hearing more about intelligent augmentation. This is the way to combine the skills of insurance professionals with new data sources and analytics that are embedded seamlessly in the workflow. We’ll see less need for re-keying data and maybe even better adoption around global data standards. Most technology companies are going to be more cautious about claiming to have an all-conquering AI solution; no one is going to be disrupting underwriters or claims professionals in 2023. Humans will still be needed ‘on the loop’ if maybe less ‘in the loop’, but no one’s handing over the underwriting pen to a machine this year.

There is one big exception to the potential radical shift in the use of AI. ChatGPT from Open AI could be the biggest step forward for finding information since Google Search appeared 20 years ago. It’s passed an exam at The Wharton Business School and – if reliable, comprehensive data sets were available – ChatGPT could fundamentally change the nature of risk assessment. We’ll see the return of the insurance innovator. Many insurers got burnt with their early experiments in building incubators and investing in startups over the last eight years. There is a re-emergence of a corporate focus on innovation and developing digital strategies.

“We expect to see more brands creating products specifically because of online communities report”

Accenture Life Trends 2023

Companies such as Liberty, AXA XL, QBE, MAPFRE, HDI and Chubb all now have very senior leaders with roles such as chief digital strategy officer, able to influence and engage both the business users and the decisionmakers. Dawn Miller, the recently appointed commercial director of Lloyd’s, has set the goal for the Lloyd’s Lab to become the world’s best insurance innovation hub. Maybe it already is.Collaboration between insurers and their commercial corporate clients will finally deliver benefit in the area of risk management, or what is known as ‘predict and prevent’.

Chubb and AXA XL have been among the leaders in this field and last year AXA announced the launch of a strategic initiative built around its Digital Commercial Platform. This brings together several of the insurer’s existing smart services, including real-time data and analytics collected through satellites, drones and sensors. These services are combined with the work being done in AXA Climate and other parts of the business. The resulting solutions are now being offered to the insurer’s clients. Losses reduce, claims go down. Everyone wins.

ROBERT LUMLEY, CO-FOUNDER, INSURTECH GATEWAY

KEY TAKEAWAY: 2023 will be the year for radical tech models

AN INSURANCE INNOVATION EXPLOSION

For those looking to uncover new lines of business through startups, we are already seeing signs that 2023 will be the year for radical tech models. Metaverse, NFT, crypto natives, clean tech, climate tech, algorithm failure, battery lifecycle insurance and quantum computing AI will be on the insurtech VC radar.

VENTURE INVESTMENT SLOW-DOWN

Decisions will take longer and due diligence will be tougher, as caution turns into process for VCs and corporate investors.

INSURER APPETITE: A TALE OF TWO MINDSETS

As ever, there will be two camps. Those who will materialise their innovation efforts into new products this year; and those who will retreat from insurtech to core business activities. We think the former will win out in the long run, having a front-row seat on innovation in the sector.STARTUP SUCCESS More planning and leaner operating models will be needed for founders to succeed in 2023. Forged in adversity, this year will see the birth of businesses with strong foundations.

SABINE VANDERLINDEN, CO-FOUNDER AND CEO AT ALCHEMY CREW

KEY TAKEAWAY: Creators’ activities bring opportunities and unique risks…

“Closing the gap will require insurers to think and act differently – launching new products and services in innovative ways”

EY Global Insurance Outlook 2023

We will see new products and services emerge to protect brands and creators2023will see several fundamental drivers affecting the next wave of evolution.

DE-UNICORNIFICATION

Fintech unicorn births steadily declined in 2022, sinking to a low of five in Q4 – an 87 per cent drop, compared to Q4 2021, according to CB Insights’ recent State Of Venture report. We counted 252 unicorns in 2022, compared with 538 in 2021. Despite this decline, 2022 was still the second-highest funding year for US fintech startups. Insurtech investment, meanwhile, dropped 53 per cent, and M&A exits reached a new high, rising 40 per cent in 2022 to 81 deals. Companies that want to achieve the magic $1billion status will be required to support their projections with well-defined unit economics and profitable trajectories.THE

CREATOR ECONOMY

As of January 2023, more than 4.9 billion people (62 per cent of the world’s population) are using social media, and creators have learned to fulfil these users’ needs. As of 2022, the creator economy market size was estimated at $104.2billion, more than double its value in 2019. Creators’ activities bring opportunities and unique risks, such as reputational damage and the possibility of creators becoming the subject of legal disputes. We will see new products and services emerge to protect brands and creators.

CYBERSECURITY

There have been several notable cybersecurity breaches in recent years. These attacks have resulted in the loss of sensitive information, financial losses for businesses, and damage to an organisation’s reputation. As our hybrid work lifestyles increase, this level of risk will likely remain the same in 2023

MANJIT RANA, CO-FOUNDER & CEO, INSURTECH SCOUT

KEY TAKEAWAY: With capital in shorter supply, insurtechs will have to focus on generating revenue rather than hitting softer KPIs if they want to qualify for the next funding round

ECONOMIC SLOWDOWN

With inflation in high single or double digits across many of the world’s economies and a real risk of many entering, if not already in, recession, insurers will continue to be feel the blowback throughout 2023. One consequence of the cost-of-living crisis across all lines of business will be that the recent increase in fraudulent customer behaviour is likely to be sustained – both legitimate claims being exaggerated as well as an increase in falsified claims, particularly for lost gadgets. The challenge here for insurers who are focussing heavily on driving down settlement times, is how they put fraud mitigation in place so that legitimate customers are fast-tracked ahead of the others – and all without causing undue friction for a potentially innocent claimant.

“Insurers will increasingly ‘unbundle’ their value chain and focus on sources of distinctive value creation”

McKinsey, Global Insurance Report 2023: Reimagining Life Insurance

As insurers put greater emphasis on automation to address the problem, we are likely to see a shift in the way that people are deployed across areas such as first notice of loss.Meanwhile, motor insurers face a unique set of problems. Second-hand vehicle prices have already risen significantly, by more than 40 per cent in some cases. This, coupled with a shortage of parts, such as electronic sensors, is driving up the cost of vehicle repairs. But when a market is in recession, it’s difficult to raise premiums as consumers focus more on saving money and getting covered than finding the most appropriate cover. This is likely to result in an increase in the number of uninsured vehicles on our roads, which leads to a whole other set of problems when prosecuting claims.

TALENT SHORTAGE

Insurers will spend this year looking outside of the industry for tech solutions that are being used to address similar challenges to their own. They will also focus on attracting people from other sectors who can view existing propositions and processes through a new lens. That said, it’s always been a challenge to position insurance as an exciting career opportunity. And while insurers are broadening their recruitment strategy, they are also likely to see an even greater proportion of younger staff exploring other opportunities that give them greater job satisfaction and flexibility. How they address that brain drain will be a key factor this year, especially as the trend for very senior people to take early retirement shows no signs of slowing. Many have moved into more of a portfolio career, spreading their time across multiple businesses – although we are seeing a huge increase in the number joining insurtechs as advisors on a part-time basis, so there is a ‘win’ there.

GROWTH STRATEGY

With capital in shorter supply, insurtechs will have to focus on generating revenue rather than hitting softer KPIs if they want to qualify for the next funding round. We are likely to see some early-stage companies being acquired by cash-rich insurtechs as they try to develop more end-to-end propositions. At the same time, legacy insurers will take the opportunity to capture cash-strapped startups as they focus on developing propositions that are more relevant to customers, particularly younger consumers and the gig economy, which they find hard to reach and service

BRADLEY COLLINS, CHIEF COMMERCIAL OFFICER, INSURTECH INSIGHTS

KEY TAKEAWAY: Insurance companies adopting AI in the most strategic ways will excel across many areas of their business

“More citizens are realising that they are personally responsible for their future health and retirement costs… This realisation is creating opportunity for insurers “

McKinsey, Global Insurance Report 2023: Reimagining Life Insurance

The rapid adoption rate of AI is what I am most excited to see grow in 2023, not just in insurance, but in all industries. Whilst I don’t foresee robots replacing employees, perhaps the humans (and companies) best utilising AI will replace those who aren’t.Insurance companies adopting AI in strategic ways will excel across many areas of their business, from underwriting, claims processing, fraud detection and personalised pricing, to enhanced chatbots and virtual assistants.

It’s important to note, AI technology can be complex and difficult to understand, and AI systems are only as good as the data they are fed, so there is a risk of bias or incorrect assumptions if the data is incomplete or inaccurate.There’s also the ethical debate around AI in insurance to consider.

At the Insurtech Insights conference at The O2 in London on March 1 and 2, I’ll be joined by the Chartered Institute for Insurers for a live sparring session with ChatGPT, the advanced conversational chatbot that redefined what AI assistants can do when it was released in November 2022. ChatGPT was followed in February by the soft launch of Google’s Bard, which uses similar next-generation capabilities and Microsoft’s Bing. These will raise the stakes in AI-assistance. We’ll follow the ChatGPT demonstration at the show with a discussion on the broader issues of fairness, bias and morality which those companies and industries that embrace AI must now address. It’s an important debate that we all need to engage in.

LISA WARDLAW, INSURANCE DIGITAL STRATEGIST

KEY TAKEAWAY: 2023 will be the year where a shift from being a static-based industry to a dynamic-based industry catalyses

We can focus on technology, product and business model advancements, however, I’m starting to observe patterns that are macro in nature but which tend to be buried deep in the roots of the industry and contribute to the fog of innovation.So, my top prediction is that the current forces of economic environment, frequency and severity of events and capacity constraints will propel us to burn off that fog and unearth this rooted trend. 2023 will be the year where a shift from being a static-based industry to a dynamic-based industry catalyses.Let’s break that down. What does static mean? ‘Lacking in movement, action, or change’.

“Insurers are likely to be judged not just by plans laid out in their annual sustainability reports, but by how their initiatives actually limit the impact of climate change “

Deloitte Insights 2023

What does dynamic mean? ‘Of a process (or system) characterised by constant change, activity, or progress’. Traditionally, our industry did not have the real-time processing or data available to it, which resulted in all of our processes and functions being built to be static or point-in-time.The transformation of capabilities to be real-time, streaming-enabled (across every function, line of business and segment) has created the ability to continually evaluate precise and identifiable risk at all levels.

We have seen traction of this in some areas like usage-based, embedded and cyber insurance. The trend in 2023 will be to extend this dynamic capability deep into the traditional functions and business lines.This will enable much greater adoption of insurtech capabilities with insurance carriers, which will create a platonic shift in creating newly defined products and solutions for society at large.

JEFF SHI, FOUNDER, INSURTECH GROUPS

KEY TAKEAWAY: Hot technologies will be software as a service (SaaS) or distribution solutions that focus on client experience

“While inflation and recession will hurt insurers, in the form of higher claims costs and reduced demand, higher interest rates may provide an earnings tailwind “

EY Global Insurance Outlook 2023

We all saw the mess that SouthWest Airlines got itself into following Storm Elliott, which brought severe weather to the United States in December and was estimated to have caused $5.4billion in insured losses across 42 states.Around 60 per cent of SouthWest’s flights remained rooted to the ground, thanks to a technology meltdown that wrecked internal communication and left tens of thousands of passengers stranded. Six months before, it had made what turned out to be a fatal decision to close its call centre in favour of automated assistants – who couldn’t handle the crisis. It was a lesson for all CEOs: if you get it wrong by investing too much or too little corporate venture capital (CVC) in digital initiatives, no one will blame you as we are all just trying to figure out this whole insurtech/fintech space.

But if you get your client experience wrong, then there’s a direct impact on your bottom line, your retention and, if it plays out on social media, your reputation. Then it could be the senior leadership’s jobs and pensions at risk, as several at SouthWest may find following a Senate hearing this month (February). With that in mind, hot technologies for 2023 in the insurance industry will be software as a service (SaaS) or distribution solutions that focus on client experience, which big carriers can plug in and integrate.In terms of investment strategy, with the SPAC IPO looking like a thing of the past, many of the 8,000 insurtech founders in our space have had to adjust their exit plans. Venture capital and private equity funding are offering slim pickings, so we will see more founders take the M&A routes.

Sherman’s & Co, William Blair, Dowling Hales, Oppenheimer, Stonybrook, and many other insurtech/insurance investment banking firms will have a record year.And, circling back to the events that caused SouthWest Airlines such grief, geo-focussed insurtech and customer-service-focussed insurtech in particular will be bid up and purchased.

This article was published in The Insurtech Magazine Issue 09, Pages 4-5 and 37-38