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WHY SHOULD YOUCARE ABOUT INSURTECH?

While it may resemble a “Wild West” environment — InsurTech is full of technology-related companies

striving to solve problems and inefficiencies in the insurance industry.

1 November 2017 ChannelCheck

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M A R S H B E R R YI N S U R T E C HC H A N N E L C H E C KIn short, the insurance distribution market should care about the InsurTech space because of the possibilities to boost satisfaction amongst customers and employees. While it may resemble a “Wild West” environment — InsurTech is full of technology-related companies that are striving to solve problems and remove inefficiencies in the insurance industry. Examples of technologies include photos of auto damage to support claims, facial analysis for life insurance underwriting, and sensors in industrial machinery — just to name a few. That said, it is still in the early days with start-ups ranging from firms with an employee count of one to those sponsored by major global insurers and venture capital investors.

At MarshBerry, we see it as an area of opportunity and NOT total disintermediation for insurance agents and brokers. As such, MarshBerry commenced its first InsurTech Channel Check designed to gather insights about growth and trends.

QUESTIONS WE ADDRESS INCLUDE:

1 What does InsurTech mean?

2 Is InsurTech leading a shift from product-centricity to consumer-centricity in insurance?

3 What's the uptake on these technologies?

We are pleased to present the results of primary research held with insurers, entrepreneurers/start-ups, consultants, agents/brokers and others in the U.S.

KEY TAKEAWAYSWHAT IS INSURTECH?

The goal is to deploy new technologies to improve accuracy, responsiveness and management of insurance in the U.S. and globally.

Some emerging technologies that may impact the insurance distribution space involve customer engagement, regulation/law, data and analytics and information security.

Players include entrepreneurs, large and small insurers and investors (may or may not be already invested in the insurance space).

BECOMING CONSUMER-CENTRIC?

Yes! InsurTech is driving the dialogue away from a product-focus to a customer-needs/experience focus in order to remain relevant in the face of improving technologies in the insurance industry.

A second consumer-centric future trend is a change from finite annual contracts and pricing to dynamic and responsive coverage and pricing.

It's a shift from traditional insurance that utilizes few data points and annual contracts to an industry offering active insurance products using multiple data points and dynamic coverage and pricing.

WHAT IS THE UPTAKE ON NEW TECHNOLOGIES?

Still early with a mix of incumbent insurance firms and start-up technologies looking to address gaps in the insurance industry.

While interest in InsurTech technologies is high from across the insurance value chain, there remains uncertainty and lack of visibility into demand for the technologies at this time.

New technology can create new risks which need to be identified, measured and monitored.

2ChannelCheck November 2017

What Does InsurTech Mean?The emergence of InsurTech has been powered by new technologies, digital capabilities and devices that are reducing costs, transforming systems, distribution channels and processes, and improving the user experience. While new “start-ups” are receiving a lot of attention, traditional insurers are actively pursuing their own initiatives in personal and commercial lines of business. Insurers are leveraging products such as telematics, smart homes and sensors, and auto-pilot.1

In the U.S. and global insurance industry, it is still early in the introduction of new technologies to improve accuracy, responsiveness and management of insurance products and delivery. InsurTech signals a shift from traditional insurance using few data points and annual contracts in an arms-length transition to an active insurance product including multiple data points (e.g., continuous data transmitted from sensors) and dynamic coverage with real-time on/off capabilities and greater intimacy between the insurer and the insured. For insurers, these technologies are anticipated to reduce costs and improve data quality (e.g., friction costs related to claims management).

Existing roles will evolve and new roles will be created within nodes of the insurance industry. Please note that at MarshBerry we do not expect a reduction in the need for insurance brokers/agents. We anticipate a faster overall transition to a more consultative role, different from a “sell and done” role.

Examples of insurance technologies that we expect to impact insurance agents/brokers are (not in order to importance and/or ranking):

Customer Engagementn Customer relationship management (CRM)n Price aggregationn Digital claims processn Online policy purchasingn "Just-in-Time" Coverages

Regulation/Lawn Digital contractsn Automated compliance processes

Data and Analyticsn Pay per use insurancen Personalized premiumsn Dynamic underwriting

Information Securityn Claims fraud detectionn Cyber breach insurancen Personal data storage

Players in InsurTech include a wide range of entrepreneurs, large and small insurers, and investors (may or may not be already invested in the insurance space).

QUOTESn An Entrepreneur said: “The question is will traditional firms

re-orientate to customer-facing or will start-ups build strengths to beat incumbents. In the long run, winners need both. Those doing it well for decades and those bringing in new capabilities to the system.”

n A Westcoast-based Independent Agency Executive commented: “InsurTech is too new and I don’t have visibility into what it means. My guess is that anything that will make underwriting better will be accepted right away.”

n A Senior Consultant predicts: “Old roles of an actuary and a traditional underwriter will move to new roles such as ‘risk trader,' ‘risk signal analyst,’ and ‘business risk advisor.'"

Is InsurTech leading a shift from product-centricity to consumer-centricity in the insurance industry?The complexities involved with understanding risk are increasing at never before seen speed due to rapid technology advancements, customer expectations and dramatic lifestyle changes. Five years ago, potential customers would have been challenged to find more than a handful of insurance companies offering cyber risk coverage. Today, however, cyber is one of the largest growing categories of coverage. What happens when cars drive themselves? How does one prepare for unforeseen products/services and therefore consequential risks?1

Insurance executives are reporting a significant trend that moves away from a product-focus to a customer-needs/experience focus in order to remain relevant in the face of improving technologies. Insurance products are being reshaped by technology to be “on-demand” and “responsive” to needs of the end-user customer. For example, sensors on industrial machinery may help scope commercial insurance coverage and pricing based on up-time. Or, “miles-driven” and “daily weather” may help scope auto coverage and pricing. Tied to this is a trend of moving from finite annual contracts to real-time flexible contracts.

IN MARSHBERRY’S EXPERIENCE, AND IN THIS STUDY, INSURTECH IS AN OPPORTUNITY.

3 November 2017 ChannelCheck

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ENGAGE WITH MARSHBERRYAUTHORED BYAlison Wolf, Director – Research440.637.8119 Alison.Wolf@MarshBerry.com

NEED HELP IDENTIFYING WHERE YOUR AGENCY SHOULD FOCUS? Call MarshBerry for a strategy consultation at 800.426.2774 or visit us online at www.MarshBerry.com. n

The frame of reference for customers related to insurance is also changing. Instead of simply comparing one insurance agent/broker to another, customers are thinking of the customer experience in relation to other products services they purchase such as Amazon.com, Inc., Apple Inc. and other technologically-advanced delivery systems.

QUOTESn An insurance CEO commented: “Insurance has shifted to

being customer-centric from product-centric. In the next three to five years, the winners are more focused on solving customer problems than selling products. There is a blurring between traditional insurance lines and we see more bundling changing the way we work together to be customer-led.”

n A Senior Executive at an auto insurer stated: “Technology is leading to enterprise-wide changes and huge disruptions (within insurers). We asked ourselves ‘what would make insurance a wow experience’ and the answer was to make it simple, proactive and personal. How do we make that happen? We need to invest in a new technology platform which is very hard to accomplish atop multiple legacy systems.”

n An Insurance Senior Executive asked: “Why is driving in a snow storm priced the same as driving on a clear day? Risk-based coverage and pricing will accurately reflect the risk.”

n A Product Manager comments on their efforts to “bring the (insurance) experience to a customer-centric model, and not just engineers trying to tell clients what they should want.”

n An Independent Agency Executive stated: “The further you can get away from the transactional sale, the better. InsurTech is good for personal lines and small bots — right now it is less of a risk to lose high net worth personal lines because of the transactional type model.”

n An Independent Agency Executive shared: “Millennials want everything right now, so InsurTech is good for them because

of how quick and simplified the process can be. But it will not help them understand their insurance policies much.”

What is uptake on new technologies?Big buzz comes with big expectations. And like the box office, big buzz doesn’t always mean big results. That is the current state of InsurTech. While the hype cycle is almost complete — investors, entrepreneurs and incumbents have embraced it. The need for innovation is real and opportunities to make an impact are real. We know the hype but we don’t know yet what will shape the future.1

While insurance-targeted technologies are novel, interest in InsurTech technologies is high from across the insurance value chain. However, when asked about demand/uptake data for InsurTech technologies, all of our respondents reported uncertainty. In MarshBerry’s opinion, this uncertainty perspective is two-fold: 1) it is still too early to have a clear sense of demand, and 2) a “tale of two cities” environment exists. Some technologies (especially in the claims management space) appear to have gained some traction, while others remain more embryonic. In addition, the market power of participants varies between start-ups, investors, insurers and established incumbent technologies.

According to the InsureTech Connect 2017 Conference, web technology is also expected by many to be creating new risks. These include cyber-hacking, control of machines, utilities, and financial information — to name a few. In MarshBerry’s opinion, sharing data will help to identify, measure and monitor risks going forward. A question looking forward is will it be humans or machines performing these functions?1 InsurTech Connect 2017 Conference