Though the stock market is still driven by enthusiasm for artificial intelligence, businesses devoted to insurtech, or the revolution of insurance through technology, are not benefiting from this enthusiasm.

Stocks in publicly traded insurtech companies including Hippo, Root, and Lemonade have been fluctuating in value, according to The Wall Street Journal.

Though insurtechs has seen venture-capital money dry up, it might be a good fit for mundane forms of artificial intelligence

According to new data released by Gallagher Re, global insurtech funding dropped to $4.5 billion in 2023—a 44% decline from the year before. The industry is recovering from the free-money frenzy of 2021, but last year’s involvement in megadeals was at its lowest level since 2017.

Innovation is necessary in insurance

Innovation is necessary in insurance

Natural disasters are driving up insurance costs and displacing coverage for households. Personal auto insurance has grown unaffordable as underwriters continue to lose money. A few minor insurance lines are still considered secondary.

Though Californian entrepreneurs revolutionized the industry nearly ten years ago, few of these problems have been resolved.

In actuality, the majority of insurance success stories exist before the current surge in venture funding. One notable exception is the Texas-based broker Goosehead Insurance, which was created in 2003 and prioritizes agents. Since going public in 2018, the company’s stock value has increased tenfold.

Parsyl, a Lloyd’s of London syndicate that specializes in insuring for perishable marine cargo, is arguably a better example. Venture investors like HSCM Ventures and GLP Capital Partners support this data-driven company.

They have maintained a strong underwriting record while allowing it to grow gradually.

Venture capitalists typically seek rapid rates of expansion

Venture capitalists typically seek rapid rates of expansion

Consider the promising company Koffie Financial, which aimed to disrupt the truck insurance market, where established competitors had cut back on coverage.

Following the withdrawal of an inside investor’s pledge to provide a bridge loan, the company is now terminating the majority of its staff.

The conundrum with insurtech is this: Consumer-centric, tech-inspired buzzy optimism doesn’t work well in an industry where attempts to grow quickly and appeal to cool customers backfire because it attracts the riskiest clients.

Proprietors like Allstate, Prudential, and AXA possess significantly more data to accurately assess risk, counterbalancing the benefits that digital technology and artificial intelligence were meant to bestow upon entrants.

Traditional insurers have been forced to go online, make telematics investments, and begin examining artificial intelligence (AI) by this initial wave of insurtech entrepreneurs. Many of them were not even able to issue digital policies until recently.

Over the past decade, insurers have transitioned from discussion and experimentation to market introduction of insurance telematics.

Insurance telematics is revamping auto insurance by effectively merging technology with finance and human behavior. It makes the entire system more transparent and increases driver safety.

In the early days, the definitions of those acronyms were imprecise. But as they imply, the factors affecting premiums are generally how much (far), when, how well (behavior), and where (location) the vehicle is driven.

Telematics technology has the potential to overhaul the fleet industry and is becoming a mainstream option for customers.

According to Verisk, in the taxonomy of the Internet of Things, a phrase coined by Kevin Ashton in 1999 that has gained currency in the past few years, telematics is in the topic family of machine-to-machine (M2M) communication mechanisms.

Silicon Valley is concentrating on fewer projects

Silicon Valley is concentrating on fewer projects

It should cease supporting ostentatious competitors that claim to guarantee greater use of technology and focus on the technology itself in order to make a more lasting impression.

The California-based Cyberwrite and the Spanish insurance MAPFRE partnered in November to deliver more precise data on a company’s susceptibility to cyberattacks through artificial intelligence.

It is used by startups like Charlee:ai to identify fraud and scan claims. There is also a lot of competition to produce more accurate predictions of climate risk.

Next up is Sure, a $550 million business that wants to function as a one-stop shop for IT. Actuarial models, back-end technologies for speedy quote generation and claim processing, agent software, chatbots for customer support, and direct distribution channels including websites and mobile applications are some of the services it offers.

While leaving the underwriting risk to businesses that have the required data—carmakers, real estate marketplaces, and rental platforms looking to introduce their own embedded insurance lines—it seeks to mimic the slickness and speed of insurtech startups like Lemonade.

Sure unveiled a new solution that pre-integrates new rules with the technology to be distributed digitally and automates the legal paperwork required to introduce new policies.

Introduced new insurance products frequently take longer than a year to market

Introduced new insurance products frequently take longer than a year to market

Easy customization of policy templates will speed up the process and improve the outcomes’ ability to correct coverage gaps based on individual needs.

AI has the ability to go one step further in enabling insurers to understand the impact of particular policy language on claims payments.

This kind of menial labor is ready for dislocation. Overexcitement in the insurance industry is never a good thing (see How Artificial Intelligence Can Help Insurers Reduce the Inflation Impact?).

In recent years, AI has made significant progress in a number of different domains, including facial recognition, robotics, and machine translation. However, there are still many challenges that need to be addressed before AI can reach its full potential.

For example, current AI systems often lack the reasoning ability of humans and they are also susceptible to biases and errors. As AI technology continues to develop, it’s likely that these limitations will be overcome and that AI will become increasingly important in a wide range of areas.

AI can be used in a number of ways, from pricing insurance products and figuring out how to get clients for insurance business to streamline claims processing. By harnessing the power of AI, insurers can gain a competitive edge and improve the customer experience.

One area where AI can have a major impact is underwriting. Currently, underwriters rely on manual processes and antiquated data sources. This often leads to delays and errors.

AI can help to speed up the underwriting process by providing accurate and up-to-date data. This, in turn, will enable insurers to offer more competitive prices. AI can also be used to detect fraud. By analyzing large data sets, AI can identify patterns that may indicate fraud. This will help to protect insurers from losses and improve the bottom line.

Cloud technology should be considered foundational for achieving most digital transformation goals, as a key enabler of workforce, technology, and operational flexibility. At the same time, cloud often provides improved expense management, greater speed of deployment, and more rapid scaling of products.


AUTHOR: Jon Sindreu – The Wall Street Journal columnist

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