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elegant hand holding insurtech ball

Over the past decade, the word ‘insurtech’ has been tossed about the insurance industry, causing ground for many debates and speculation. But what is it, where does an actuary fit in all of this and what does it mean for the future of insurance?

In this piece I will first give a brief background on insurtech, I will talk about the role of the modern actuary in it, and the current uses of this technology today. I will then go on to give my predictions for the future of this tech, before giving my final thoughts on how the modern actuary can stay relevant in this ever-changing world we live in.

The Insurance of Tomorrow

The key fundamental of insurtech is the application of technology to insurance schemes so that they operate more efficiently and cost-effectively. The most visible examples of this technology in the insurance world today are vehicle monitoring devices, wearable activity trackers, artificial intelligence, robotics, the Internet of things, and more.

Many believe this tech is completely transforming the business model of the insurance industry. If we look back not so far as the early 2000’s, people would have had to schedule a meeting with a broker to find insurance. If we fast forward a few decades, a traveller in search of instant travel insurance is only a few touch-screen swipes away. A hungry husband who is uninsured on his wife’s car, can unearth hourly car insurance in minutes before the local Chinese takeaway closes.

How is all this possible? Yes, you guessed it – insurtech!

quarterly global insurtech funding graph

Figure 1

Not to be taken lightly, insurtech has attracted colossal levels of investment over the last five years alone. Nearly US$2bn was invested globally in the last quarter of 2019 alone (Figure 1) and the only way is up. Whilst there is no plausible data available for how much requisite insurers are investing internally in innovation technologies, a sum north of US$20bn per annum is a reasonable guess.

Insurtech: Where Do Actuaries Fit In?

As the dawn of the fourth industrial revolution is just around the corner, the insurance industry must adapt, but so must the Modern Actuary. Insurtech presents a wide berth of opportunities for the modern actuary, new and interesting sources of data, the Actuary’s bread and butter. But only if they are willing to adapt their traditionalist views.

Data science, a new and rapidly emerging field, can be thought of as the right-hand man of insurtech. You cannot have one without the other. To truly do well in this ever-changing field of insurance technology, the actuary must move away from their comfort zone of well-structured data and mortality tables and embrace modern data science techniques such as clustering, neural nets and deep learning.

The president of the Institute and Faculty of Actuaries, John Taylor, made the statement:

“Immersed in business context, Actuaries are well placed to use the insights data science can generate”.

I think this speaks for itself about the importance of recognising modern data science techniques for the actuary of today. In fact, the institute now provides a 10-week online program that helps actuaries obtain a certificate in data science. The program covers a lot of bases, ranging from data visualisation to responsible use of artificial intelligence.

Visible Examples of Insurtech Today

Below I will state some of the most visible examples of technology in insurance today, you may be surprised at just how prevalent this is already!

Telematics (Vehicle Monitoring Devices)

Teenage drivers will need no introduction to telematics as they are extremely popular in modern times mainly due to their low cost. There are up to six different forms of telematics ranging from mobile apps to the fitting of a ‘black box’ in cars. It can be highly advantageous to both the insured and insurer as drivers can be rewarded for good driving techniques and similarly insurers can price insurance premiums more accurately due to accurate driver performance ratings.

A win-win for both parties.

Robotics

The concept of a robot may sound scary to some people, particularly if you have watched the infamous iRobot movie.

Thankfully we aren’t quite at robots taking over the world just yet and, in this case, we are talking about software robotics. These greatly outweigh human skills by providing superior speed, accuracy, 24/7 operation and reduced costs. The two main forms of this in insurance today are Robo-broking (use of software to build an understanding of a company’s insurance position) and chatbots (typically used to sell a policy or process a claim).

Smart Watches, Smart Rings and Other Wearable Tech

A friend of mine recently told me that he had received a free apple watch from his mother’s health insurance policy. I initially thought that it could make no sense as they are very expensive and to give away one for free would be ludicrous.

watch wearable technology

But, once he explained to me that he had to keep his health score over a certain level each week, it all started to make sense to me.

This again goes back to the win-win situation for both the insurer and insured. In the long run, the health insurance company would save money if their client is healthier (i.e., higher steps, correct blood sugar levels, steady heart rate variability) and less likely to claim, whereas the insured gets a cool new watch.

There is other similar technology in wearable devices such as rings, shoes, clothing and even jewellery. Across insurance, there are many advantages to using these devices, such as insuring ‘uninsurable risks’, reducing adverse selection, more accurate product pricing, enhanced customer engagement and much more.

Internet of Things

The internet of things (IOT) is a term that can be used to describe a wide range of objects that are embedded with software and sensors. The most synonymous being ‘smart home devices’ light switches, thermostats, home security systems, etc.

The availability of unlimited sources of data today coupled with the rapid development of the IOT is transforming the way people interact with their cars, homes and bodies. Businesses are finding themselves pressed to keep up with this revolution and the insurance industry is no exception.

A fantastic example I have come across of the IOT tech in insurance today is the ‘Water Hero Sensor’, a small device embedded in water pipes that sends a tweet to the customer and insurance company if there is a small change in water flow rates. The prevention of water leak incidents and floods provides the insurer with lower costs and a better experience overall for the homeowner.

A Glimpse Into the Future of Insurtech

As I have already discussed the current uses of technology in insurance today, I will now take a look at what I think the future of this technology could perhaps look like. In a recent Deloitte study, they estimated that over 30% of business in insurance companies in five years’ time will be from products that haven’t even been invented yet.

I could have been watching too much Black Mirror lately, so be advised to take these ideas with a pinch of salt.

Neuralink (Brain Implants)

Currently being tested on animals, brain implant technologies may not be as far away as we think. The changes these spells for insurance and healthcare are monumental.

The very way in which we communicate could be completely changed, languages could become a thing of the past. Diseases like cancer and cerebral palsy could become extinct and the actuarial life expectancy tables could become completely useless, as the life expectancy of humans could skyrocket with the brain being able to repair itself!

Advanced Wearables (Macro Nutrient Calculators, Emotion Sensors

Imagine 20 years from now, you are sitting having a meal with your family. After you finish your Irish stew, you look down on your wrist and your watch relays the information “Carbs: 30g, Protein: 40g, Fat: 10g health score: 9/10 - Your latest meal score has been sent to your insurance provider”.

Sounds a bit far-fetched? Well, there is no doubt that this is what’s coming for the future of wearable technology and I would be surprised if it took as long as 20 years to happen.

A further idea I think that is quite possible, is the idea of emotion sensors. Whether it be through the brain implants I have afore mentioned, or the wearable technology, I think it is a big possibility that factors like stress, grief and PTSD will be able to be calculated and relayed to insurance companies using technology.

Eye Lens Technology

eye lenses technology

Any Black Mirror fans will know where I’m getting this idea from, but just how far away from reality is eye lens technology, and what could it mean for insurance?

For starters, eye lens technology can theoretically give the user the opportunity to record what their eyes are seeing and store that information in the cloud somewhere, available for playback at any time.

Now you might be thinking ‘why on earth would I want to look back on every memory I’ve ever had?’ (I would say the same) but I'll not get into the morality of it here. What I will say is that I think it could have a profound effect on the travel insurance industry and also the life insurance industry, ultimately resulting in premiums being calculated with supreme accuracy as AI programs could detect how ‘dangerously’ you live your life.

Think I’m mad yet? Wait until you read my next idea.

Space Travel Insurance

Will we need interplanetary travel insurance in the next 50 years? I wouldn’t bet against it.

With robots currently exploring Mars, I don’t think the next thing to explore it being humans would be too illogical a theory. Many believe that colonising planets could be the only way to escape the inevitable self-implosion of planet earth and the global warming problem.

Will Elon Musk be the first man to reach beyond what we now see as the impossible and make interplanetary colonisation a reality? I’m not so sure. But what I am sure of is that technology will be at the forefront if it does happen.

Concluding Thoughts

There is no doubt that exciting times lie ahead with the innovation of technology taking over most aspects of life now and in the not-so-distant future.

But how does today’s actuary stay relevant and not become obsolete?

To truly make their mark on the insurtech industry, actuary’s must transform the industry leader’s predispositions of the actuarial profession from blockers of innovation to enablers. The possibilities to delve into fresh and contemporary fields are limitless.

Will technology overtake the actuary and cast actuarial techniques into the abyss? Only time will tell. But if they are willing to step out of their comfort zone and evolve alongside insurtech, they may just stand a fighting chance.

No one has ever been able to stop the process and evolution of technology, not even I.B.M. That is going to continue. Those who grab it and move ahead with it will determine the future in this industry.

- Eckhard Pfeiffer

“This is a guest article written by Matthew Hagan. Matthew can be found on LinkedIn here.”

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