June 2018

InsurTechs—What are They, and why do Actuaries Need to Know

By Scott Lennox

When I was approached late last summer to attend the InsurTech Connect 2017 conference in Las Vegas in October, my response was “InsurTech, what is that?” I was not familiar with that term nor did I know what to expect at the conference. So, I did what all good actuaries do. I did some research. The registration website should have some good background on this, right? It did not. Google will know, right? Well, my search provided a lot of links and a lot of information, but I still wasn’t completely clear what this was or what it means to the insurance industry, and for that matter, the actuarial community. I was placing my entire bet on the conference to enlighten me on this important topic. The conference was the right place for placing bets!  This article is about my observations and conclusions based on what I heard and saw at the conference.

An InsurTech is essentially a tech company and/or solution that connects in some way with the insurance world. The companies are often managing general agents (MGAs) that are looking to offer an alternative front end for customers. Alternatively, some of these InsurTechs are simply a technology solution that links with either a traditional insurance company or one of these MGAs. In either case the goal is to either fill a gap that exists in the industry or do something better than what currently exists. An example of doing something better is a company that inspects residential roofs using drone technology. The drone is fully autonomous and takes photos and measurements of the roof and evaluates the detailed condition of the roof (e.g., hail damage to some shingles). This type of detailed assessment of a roof doesn’t exist today. Current practice is restricted to a visual inspection by a person where the level of detail is not nearly as much as what the drone can capture. The side benefit of this technology is the significant improvement in safety for the person who now performs an inspection from the safety of ground level as opposed to climbing up a ladder and onto a roof.

Here are some of the InsurTech companies I listened to at the conference that are doing something quite interesting in the insurance world.

  • WeGoLook. This company has people who go out to take the necessary photos of damage from a claim, for example a vehicle that has been in an accident. This can save a lot on adjustment expenses as the software is designed to assess damage solely from the information contained in the photos. We talk about data mining in the analytics world, and this is just like that, but the software evaluates the photo just like you would evaluate a list of names, addresses, etc. YouGoLook, as the name suggests, allows the customer to take their own photos of damage to their vehicle. The app guides them through what photos to take and evaluates the quality of each photo to make sure it has sufficient detail to assess the damage. This could be a big savings on adjustment expenses for insurance companies, and possibly even help detect fraud as the software could maybe be programmed to detect irregularities that suggest possible fraud. This solution involves a lot of data collection and analysis, and therefore presents a need for actuarial expertise.
  • Lapetus Solutions: This company has developed an app where you take a selfie and answer some basic questions, and then the software figures out the underwriting. This is a life & health application, but it’s easy to see how something in the general insurance world could be developed. Data collection and analysis are involved here as well.
  • Plumis: This company has developed a new fire-suppression system. The current approach to fire suppression (e.g., the sprinkler system installed in a ceiling) requires special installation and maintenance. This is very expensive for homeowners, and soaks the entire room to put out a fire as it doesn’t know where the fire is thereby causing significant water damage in the process. The Plumis system scans the room to figure out where to spray a fine mist (no significant resulting water damage). It does not need special installation of a high water pressure system and wider pipes, and is easy to retrofit. 
  • Tomorrow: This is an inheritance app. You get free wills and trust service (proper forms certified in all 50 U.S. states), and through the collection of information the app recommends the level of life insurance coverage needed and can make the purchase right away as they are an MGA. There is no obligation for the customer to purchase insurance and setting up a will and trust service is a very quick and easy process. While this app isn’t part of the general insurance world, this is another example of the bundling process that seems to be more and more common. We are starting to see a lot more of this attempt to reach more customers with traditional insurance by bundling with other things the customer needs and is more likely to think about. In the general insurance world, we might think of something such as bundling insurance with roadside assistance. One can imagine the need for actuarial analysis, as there is a lot of data being collected through the app.
  • Kespry: I noted this one earlier. This is the company with the drone that flies autonomously and photographs a roof and can do a detailed inspection. Such technology could augment underwriting and increase data collection. Imagine how much better the results of actuarial analysis will be with far more accurate and detailed data.
  • Flo: This company has developed a water monitoring device that measures flow, temperature and pressure of a water system within a house. It can even detect a small drip. Such a system could have a significant effect on water claims, which are a main source of property losses. I just had water damage in my basement several weeks ago and a system like this would have been great. Of course, I always wonder about the preventing part when it comes to solutions that do monitoring. I always imagine myself on vacation thousands of miles away when my phone alerts me that my basement is flooding. I’d much rather get an alert telling me that a crisis was averted, no need to worry, and go play another nine holes.

The insurance world still has many old systems and old ways of doing things, and this is where the InsurTechs are filling gaps. For example, consider the commercial insurance world where the expertise of the agent is critical to doing business. The CEO of Next Insurance believes that computer underwriting is the only way to underwrite commercial risks in tomorrow’s world, as the agent cannot keep up. The risks are too complex and the computer can be programmed to recognize all the parameters. This is where I noticed what the InsurTechs are doing—they are placing their bets on being able to do the technology piece much quicker and better than insurers can, especially on the front end, which is where the customer interaction begins.

Many of these InsurTechs operate as MGAs and are very clear that they do not want to do the back end of insurance company operations, as they believe insurers can do this better. So, I don’t see these InsurTechs having a significant effect on the actuaries already employed by these insurers as those roles will still be needed. Many of these MGAs are, however, collecting and analyzing data to build a better customer experience. This can sometimes involve pricing. As a result, it will be important for us actuaries to make sure we’re connected with these companies so that they have actuaries involved in the data analytics and pricing (i.e., the front end) part of the process. Although we are starting to see some of these companies that started as MGAs grow big enough to start writing their own insurance (e.g., Metromile), that path doesn’t seem to be the one that most InsurTechs want to take.

There is no doubt that we are seeing a change in the insurance industry, being driven in large part by the new types of solutions that these InsurTechs are bringing. One CEO remarked that that the industry used to think that they needed to bring in people who knew artificial intelligence (AI) and teach them about insurance, but he recommends that you should instead take people who are already in insurance and bring AI to them. Is this a new skill set for actuaries? I doubt the growth of InsurTechs will reduce the need for actuaries in the short and long term. It should create more opportunities for actuaries, especially for those involved in the front-end part of the insurance products.

Scott Lennox, FSA, FCIA, FCAS, is an SOA staff fellow. He can be contacted at slennox@soa.org.