Technology, machine learning, robotic process automation, data aggregation, and analytics – in recent years, the insurance industry (like many other sectors) has been motivated to make use of those tools to improve their operations and enhance their underwriting, pricing, and loss control capabilities. These tools are also having a significant impact on how insurance companies acquire and then retain customers, who more often than not today, are looking for digital servicing from their insurance providers.
“Although later to the game than other consumer-facing businesses, the insurance industry has been heavily investing in technology and innovation, driven largely by the need to create a more dynamic consumer experience for insurance customers,” said Paul Chen, a partner in Mayer Brown’s Corporate & Securities practice. “This process of implementing technology innovation to the insurance business is the heart of what is commonly referred to today as insurance. The challenge of insurance is making insurance exciting to consumers.”
These consumer-facing insurance technologies are being developed and brought to market in a variety of ways. Some insurers are developing the technology in-house, while others are buying technology solutions as a service from B2B insurtech start-ups. There are also B2C insurtechs that are completely customer-facing, but partner with insurers to underwrite the actual policies. Beyond insurance start-ups, there’s also been an increase in big technology companies looking to partner with insurers to develop new products.
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It’s a bit of a “complicated dynamic” bringing insurance-related consumer-facing platforms to the market, according to Chen, because the regulatory considerations are considerably higher or more complex than in other industry sectors. Chen said the challenge for many insurers lies in balancing their “legacy [and] somewhat bureaucratic operating processes” with the fast-paced, innovative insurance mindset (which often includes borrowing customer acquisition and retention strategies from other consumer-facing platforms), and meeting the overarching requirements of the insurance regulators.
“Many of these insurance companies have had to tread carefully, but they still need to invest,” he said. “And so, many insurance companies are developing venture capital arms to invest in various early-stage companies and insurtechs, and these days they’re even acquiring insurance companies to help build a consumer-friendly interface that is usable on an insurance company’s legacy systems, while still complying with insurance regulatory laws.
“Corporate venturing enables an insurance company to stay on top of technology trends, while the company continues to transition from an established agent distribution system and older IT system and processes. When this is done right, corporate venturing allows company optionality to support insurance technology innovation that is a strategic fit for the insurance company, while also being a sound financial investment.”
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Before making an investment or entering into a commercial agreement with an insurance start-up, whether, on a B2B or B2C footing, there are important things for insurers to consider. Firstly, any technology must be compliant from an insurance regulatory standpoint.
“One of the top considerations is whether the technology is actually proprietary and is comprised of processes that cannot be easily duplicated by another technology company,” said Chen. “Since insurance has heavily borrowed from consumer applications, such as fintech, for example, it is important to verify that the technology is unique and is not just a package of older technology processes that are being applied to insurance.
“Another similar issue is confirming that the technology or consumer platform is actually compatible with an insurance company’s legacy systems and processes, which have existed for a long time and have been built for another era. This includes ensuring that the insurtech’s intellectual property does not infringe on other third-party rights and that the adoption of an insurtech’s processes into insurance companies’ legacy systems don’t create a cybersecurity threat or other type of cybersecurity issue.”