By Russ Banham
A decade ago, startup InsurTech firms startled both insurance carriers and brokers with an expanding array of innovative tools leveraging emerging digital technologies. For brokers, the firms’ ingenuity and agility in providing client services more efficiently and cost-effectively were perceived as a competitive threat.
This danger appears to have eased, given the increasing volume of partnership deals being inked by brokers and InsurTech firms. Such alignments generally combine both entities’ strengths to enhance the traditional risk assessment, alternative risk financing, insurance broking, loss prevention, carrier selection and other consultative services brokers provide. Other partnership deals are predicated on helping brokers improve the customer experience and streamline their back-office functions.
While smaller brokers and independent insurance agents may still have concerns over the competitive threat represented by InsurTech firms, brokers like Marsh, Aon, Willis Towers Watson, Gallagher and Lockton are pursuing a more collaborative approach. The reason is the InsurTech firms’ singularity of purpose and their focus on improving a specific process or function in the brokerage value chain.
“The skills and expertise these firms have in particular niches can help us deliver more of a ‘platform strategy’ to our clients, where both our clients and the carriers benefit from the presence of these experts’ technology tools in an ecosystem-like environment,” said Steve Petrevski, head of enterprise analytics, innovation and partnerships at Aon. “This partnering approach is critical as every industry confronts the impact of real-time information on their business models.”
The InsurTech firms’ individual expertise in leveraging different technologies like machine learning, predictive analytics, RPA (robotics process automation), the IoT (Internet of Things), chatbots and blockchain to enhance broker services offers a way to implement these tools faster than through their internal IT development. No broker has the depth of technology expertise to do it all.
“If you find the right InsurTech partner, you can go from zero to 60 in a lot less time than you could by building your own capabilities internally,” said Jonathan Hendrickson, vice president and head of InsurTech development at Gallagher.
Ben Fidlow, global head of core analytics at Willis Towers Watson, offers a similar perspective. “While we believe our IT department has some of the most talented people in insurance technology development, the breadth of new technologies and the pace of innovation are moving so fast. We can’t expect the IT group to be at the cutting edge of everything.”
Sastry Durvasula, chief digital officer and chief data & analytics officer at Marsh, commented on the evolution in broker-InsurTech relationships. “The initial reaction to InsurTech among brokers was they were the enemy,” he said. “When you don’t know the motives of a startup, you fear them.”
However, as time progressed, brokers gradually perceived the economic value and technological ingenuity presented by the firms’ innovative approaches. “About five years ago, we began to see the InsurTechs not as enemies but more like frenemies,” Durvasula said. “Today, we have reached a point where we no longer see them disintermediating our services. We are now friends and partners.”
Fidlow agreed. “There was a time when we viewed InsurTech as the opposition, but this is no longer the case,” he said. “We’re wide open to what they have to offer.”
That’s potentially good news for carriers and insureds, as well as the brokers. For years, carriers have bemoaned the high cost of distribution and the adverse impact of this expense component on their combined ratios. Meanwhile, midsize and larger businesses are worried about the hardening property and casualty insurance market, in addition to the impact of emerging risks like cybersecurity, climate change, privacy regulations, new tax and accounting rules, and growing employment practices liabilities. Brokers armed with more sophisticated technology tools arguably can better assess these risks, select appropriate carriers, and generate optimal coverages and the best costs possible.
Certainly, brokers that are slow to improve the services they provide corporate clients and other customers like governments are subject to losing this business. Brokers also must leverage technology where they can to reduce their distribution costs or they will squander their carrier relationships, as well.
“There’s always this constant tug between brokers and insurers in terms of which broker is providing the most value for insureds,” said Jim Auden, managing director in rating agency Fitch’s insurance rating group. “Large brokers have come to the realization that they must improve their technological capabilities; otherwise, large tech firms and carriers will disintermediate some of their traditional services.”
He provided the example of an app that sifts through client risk data using an algorithm to pinpoint the company’s vulnerability to specific loss types. “A carrier that develops the app may provide it to a corporate client as a way to reduce its premiums, whereas a technology firm that developed the app might sell it to the company,” Auden said. “In either case, the broker’s customary risk assessment services become less essential.”
This realization is compelling many brokers to rapidly upgrade their technological ingenuity and toolsets. “There’s enormous demand in the brokerage space for data scientists and analytic professionals,” said Edin Imsirovic, senior financial analyst at rating agency A.M. Best. “Every large broker is interested in how they can enhance their services through big data, AI, machine learning, chatbots and the IoT. They can do this internally through their IT department, or they can do it by partnering with an InsurTech firm.”
The latter now appears to be the predominant strategy, depending on the use case. “No longer do large brokers view InsurTech as a disruptive threat,” Imsirovic said. “Nowadays, they’re more likely to see them as an engine of service optimization and competitive strength.”
This promise is prompting Marsh, Aon, Willis Towers Watson, Gallagher and Lockton to seek out partnerships with diverse InsurTech firms, each with a core technological competency aimed at a particular broker process. Several brokers like Aon and Willis Towers Watson also have formed venture capital funds to invest in InsurTech startups, fueling the maturation of their innovations.
What follows are just a few of the partnership deals inked in recent months by the aforementioned brokers with different InsurTech providers (editorial space does not allow a full tally).
To start with, Marsh has secured a multiyear deal with Concirrus, a London-based InsurTech firmthat developed a platform called Quest Marinefor the global marine insurance industry. The platform uses machine learning algorithms to extract “behaviors” from large sets of data on vessel statistics, movements, weather, machinery information and demographic information. These behaviors are then analyzed using AI to reduce the ambiguities inherent in insuring ocean-going vessels, permitting more targeted underwriting and sharing of risk by insurers and reinsurers. “Insurers can make more intelligent decisions,” Durvasula said.
Marsh also launched a partnership with another InsurTech firm, Metabiota, to transfer business disruption risks related to an outbreak of an infectious disease like Zika, MERS and SARS. Metabiota’s infectious disease model, which incorporates biological, socioeconomic, political and environmental data covering a century of pandemic events, enables visualization of the frequency, duration and severity of potential outbreaks, creating a way for reinsurers to assume business interruption losses. Marsh partnered with Metabiota in creating a parametric insurance product called PathogenRX, which triggers when a pre-agreed level of financial loss attributable to an infectious disease outbreak is breached. “If you think about the number of industries like travel and hospitality affected by a pandemic, it’s a big deal to provide a way for these organizations to transfer the related business disruption risks,” Durvasula said.
The broker sealed another InsurTech partnership with Modjoul, a developer of wearable work clothes with embedded AI and haptic (touch) technologies that can determine when specific work tasks are being performed incorrectly, increasing the risk of an injury. Using the IoT, the technology instantly alerts workers and employers of the movement’s physical dangers. Safety training often follows, reducing the client’s workers compensation claims frequency and severity. The new technology was successfully tested recently at an airline baggage handling facility, Durvasula said.
Aon, meanwhile, has partnered with AI provider CLARA Analytics in developing a workers comp risk mitigation product called LAMBDA 2.0 for Litigation Analysis, Mitigation and Benchmarking of Defense Attorneys. The machine learning tool detects specific data elements within workers comp injury claims that may indicate a high risk of litigation. Once identified, the data analytics offers up the names of attorneys best equipped to defend and settle the specific type of injury. “The tool assesses the performance and settlement strategies of different counsel involved in different claims scenarios, decreasing the overall cost and duration of the claim,” Petrevski said.
Aon also has established a partnership with Groundspeed, the developer of an AI tool that extracts critical data from the billions of documents that insurers receive each year in their underwriting, claims management and risk mitigation functions. Aon estimates that insurers are losing 95 percent of insightful information through the manual extraction of data. “Insurers that access our enterprise analytics platform can use the tool to unlock insights that are trapped in a wide range of their files and documents,” Petrevski said.
Willis Towers Watson is just beginning to ink individual InsurTech deals, which Fidlow is not yet at liberty to disclose publicly. “We’re working with an InsurTech partner to develop a global platform for modeling risks like natural disasters and political insurrection affecting the performance of live events; it’s just more efficient for us to engage a partner to create the model,” he said. “We’re also working with another InsurTech partner to model supply chain risks for manufacturing clients. In both cases, the partners help free up IT resources to focus on more value-added strategic initiatives.”
Gallagher’s and Lockton’s InsurTech partnerships for the time being are predicated on back-office efficiencies. Both brokers have partnered with UiPath Studio, an InsurTech firm specializing in RPA. Lockton is now using the tool to automate invoicing processes and client premium return transactions.
“The software is programmed to log into our financial system, select a client, figure out the amount of the invoice, enter this data and then process the invoice without manual intervention,” explained Said Taiym, Lockton executive vice president and chief digital officer. “The tool liberates our finance group to focus on more important matters while providing a consistent experience for clients.”
Gallagher, on the other hand, is using the UiPath tool to submit and receive premium quotes for clients on insurance carrier websites. “In the past, a human being would have to go to each carrier site and key in different information, then prepare and package the quotes to provide to the client,” said Gallagher’s Hendrickson. “This frees up our people to do more value-added work, like helping clients make the best carrier decisions.”
All the brokers acknowledged they are in the foremost stages of engaging in InsurTech partnerships, with the lion’s share of these deals occurring in the past year-and-a-half. More alignments are to be expected. As Auden from Fitch commented, “Brokers found not to be using emerging technologies to improve the services they provide clients and carriers will have a tough time proving they deserve the fees and commissions they receive.”
Russ Banham is a Pulitzer-nominated financial journalist and best-selling author.