Although emerging markets are witnessing significant growth, most mature markets are saturated and experience margin pressure. This will show little or no change in the years to come. Insurers are looking for ways to operate more efficiently in every major part of the costs column: in claims expenses, costs of operations and customer acquisition costs. Technology purchases and investments by insurance carriers will further explode in these areas, as will the number of fintech solution providers that want to cater to that need.
Learn from digital pure players
Technology definitely eroded the barriers to entry. Successful pure-play digital insurers know how to leverage technology to defy the conventions related to cost drivers that incumbents still work with. According to McKinsey research, incumbents for instance are not able to operate profitably with less than a million policies – they hardly seem to benefit from scale economies, and for incumbents the costs of using broker channels barely differ from using digital channels.
“The difference with pure-play digital insurers such as InShared couldn’t be bigger,” says Irene van den Brink, director business development at InShared, the first fully digital insurer player on the Dutch market. In only five years, it achieved 10% market share in online car insurance, the highest NPS score in the market (as well as the lowest cost ratio). “We run 500,000 policies with a core team of only 35 FTE, but the scalability becomes even clearer when I tell you that 1,000,000 policies could be managed by just a few more FTE, and not the doubling of FTE you would see in a traditional model. With our digital model, we have proven to run a portfolio of P&C (non-life) at a 10% cost level, where we see that more traditional direct players have a cost level between 20-30%, and broker models even higher than that. And this is just the beginning. Adding volume to our operations means we can go as low as 7-8% expense ratios, leveraging the full potential of a digital model.”
This is important to keep in mind when implementing fintech solutions to achieve substantial cost savings. The fintech solutions should address the root cause; they should dramatically reduce the complexity of current operations.
Insurers spend between 60 and 80 cents of each euro of premium on claims. This means ample opportunities for fintechs that provide innovative solutions that reduce this amount. Think of solutions for improved claims management and fraud detection. Due to insurance fraud, €60bn is lost each year in Europe and the US alone. Of all fraudulent claims, 65% go undetected. Insurers spend no less than €240m annually to tackle fraud.
Insurtechs that reduce costs
Here’s 12 insurtech solutions that dramatically reduce such costs:
Everledger is using the technology behind bitcoin to tackle the diamond industry’s expensive fraud and theft problem. The company provides an immutable ledger for diamond ownership and related transaction history verification for insurance companies, and uses blockchain technology to continuously track objects. To achieve this, Everledger has partnered with different institutions across the diamond value chain, including insurers, law enforcement agencies and diamond certification houses across the world. Through Everledger’s API, each of them can access and supply data around the status of a stone, including police reports and insurance claims.
OutShared recently launched the CynoSure digital insurance platform, a complete head-to-tail digital insurer in-the-box. CynoSure is a SaaS solution that covers the back-office system-of-record to all front-end web and app interfaces. For instance, with CynoClaim (one of CynoSure’s key modules), more than 60% of all claims can be managed automatically, resulting in lower costs as well as increased customer satisfaction. The platform can be used for new market offerings and the renovation of established operations migrated to the platform. Results of the first implementations are promising: up to 50% decrease in costs and a 40% increase in customer satisfaction. CynoSure takes 6-9 months to implement, whether it’s new or a migration – quite spectacular in the insurance industry as well. (InShared is powered by OutShared.)
EagleView Technologies provides aerial imagery, data analytics and geographic information solutions. Thanks to a fleet of 73 aircraft (and drones) that capture images on a year-round basis, EagleView’s image library contains more than 250 million images spanning 12 years. This provides the most comprehensive current and historical view of properties available. Insurers use the library, data and visualization tools, for instance, to identify preexisting conditions and estimate storm damage to roofs. This not only leads to better decision making in claims adjusting, in most cases it’s not necessary anymore to actually visit the site. In addition to these cost reductions, faster closing of claims leads to increased customer satisfaction.
Enservio software uses demographic and other information to estimate the value of contents in a home. The software is, for instance, used to settle claims. Imagine a house being destroyed by a hurricane – the software allows the insurance company to reduce time-consuming negotiations, to eliminate discussions and pay the claim three times faster.
Lexmark health insurance solutions provide carriers with the tools to expedite claims processing, simplify communications and reduce costs. The solutions extract data from claims forms with an accuracy rate of 90% or more, eliminating most manual data entry and boosting straight-through processing. Specific content management solutions integrate with legacy systems to provide health insurance document management for unstructured content in any form – paper, email, web forms, faxes, print streams, and industry standard formats – giving instant access to, for instance, claim adjusters.
AdviceRobo solutions make use of a machine-learning platform that combines data from structured and unstructured sources to score and predict risk behavior of consumers. AdviceRobo, for instance, provides insurers with preventive solutions applying big behavioral data and machine learning to generate the best predictions on default, bad debt, prepayments and customer churn. Predictions are actionable because they’re on an individual level.
Shift Technology leverages data science to detect and model weak and strong signals of fraud, including fraud by organized gangs. Shift Technology has developed algorithms to model data analysis of insurance policies and insurance claims, and external data, while integrating the expertise of insurers. To be implemented and configured, the solution requires limited technical or financial investment. The solution is provided in a SaaS model and charged based on the volume of claims processed. The platform is used by general insurance companies as well as other actors in the insurance ecosystem, such as expert networks.
Not really insurtech, but too interesting not to include … PartsTrader is an online car parts marketplace that US insurer State Farm is using to dramatically improve the repair process. Repair delays caused by parts ordering issues result in millions of dollars in rental vehicle expenses daily across the industry, and high parts costs are reducing the number of vehicles that can be repaired. Using PartsTrader addresses both problems. The objective is to improve parts availability, quality, order accuracy, competitive pricing and process efficiency.
The LexisNexis Intelligence Exchange data platform allows insurers (among others) to review an incoming claim, for instance, against claims made with other insurers, resulting in faster settlement of genuine claims and coordinated investigations of suspicious claims. It also detects potential insurance fraud (eg misrepresentation and non-disclosure of relevant facts, and lapsing of a policy in the second or third year due to deliberate churning by an agent).
QuanTemplate is a cloud-platform to analyse, report and communicate bespoke insurance information between parties. The software is built for the complex, collaborative world of the wholesale reinsurance markets. The users can manage their whole workflow within one app. The platform reduces time and costs spent on reporting and analytics, while increasing speed and transparency.
VitalHealth Software develops cloud-based e-health solutions, in particular for people with chronic diseases such as diabetes, cancer and Alzheimer’s. The company was founded 10 years ago by, among others, Mayo Clinic. The impact is huge since chronic diseases account for the majority of healthcare costs. VitalHealth Software features include care providers participating and collaborating in health networks, gaining web-based access to shared, protocol-driven disease management support based on established clinical guidelines, seamlessly integrated to and accessed from within existing electronic health records. At the end of the day, VitalHealth Software aims to have a positive impact on the lives of patients. Clients and partners of VitalHealth Software include top 5 health insurance carriers in Latam, Europe and China, all eager to improve patient care and health costs management simultaneously.
All solutions that we featured in this blog have one thing in common. On the one hand, they contribute to significant cost savings, and on the other they improve customer engagement. Combining the two should be a leading design principle in digital transformation efforts.
In our next post, we’ll focus on the third flavor of winners in fintech insurance technology: insurtechs that play new roles in the value chain. Stay tuned!
See event: DIA Barcelona 2016