Business Sector in Critical Condition: Insurance Industry

In the dynamic world of finance, the insurance sector is experiencing a significant transformation, thanks to the integration of Artificial Intelligence (AI) and the rise of Insurtech companies.

New York-based Lemonade Inc., with over 2.4 million customers and surpassing $1 billion of in-force premiums, stands as a testament to this change. Notably, Allianz made a strategic investment in the company back in 2017.

The industry is witnessing a wave of acquisitions, with Chris Rhodes, chief insurance officer at Next, stating that the acquisition of Lemonade gives long-term stability and amplifies ambitions for growth. This merger could potentially help Munich Re implement AI tools across its operations.

James Ruotolo, senior director of Financial Services at SAS, observes that the increase in acquisitions is a result of technologies gaining a foothold and showing real value in the market.

However, integrating sophisticated new tools like AI and machine learning with insurers' legacy systems can be challenging. Few insurance companies have realized any significant productivity gains from these technology investments.

Despite the challenges, the potential benefits are compelling. AI can analyze vast amounts of data to more rapidly and accurately assess underwriting risks, spot fraudulent claims, and settle legitimate ones. Moreover, AI can help automate billing processes and improve the customer experience by responding rapidly and intelligently to inquiries.

The French Insurtech company Alan, which sells health insurance to corporate clients, is a prime example of this transformation. With a valuation of over $4 billion and covering 745,000 customers, Alan has expanded into Belgium, Spain, and Canada.

Insurtech firm Zhong An, based in China, also boasts millions of customers and is partnering with Sompo Japan Nipponkoa to expand into Japan. Interestingly, the Insurtech company that Allianz has strategically invested in and that has so far been the partner of Zhong An to expand in Japan is SBI Holdings.

The industry is shifting from technology-led experimentation to business-led transformation, as Melanie Kolp, CTO of Technology Strategy, Data & Innovation at Nationwide, suggests.

SAS, a software firm and godfather of data analytics, counts 47 of the 50 largest global insurers as customers. SAS helps insurers identify technology solutions for business problems and integrate them into legacy systems.

Hundreds of Insurtech companies are focused on bringing AI functionalities to insurance business processes. Arun Prasad, a US principal at Deloitte focused on insurance, notes that the APIs are more robust now, enabling the integration of new technologies into legacy cores more easily.

Prudential Financial is also embracing this change, monitoring the market for new tech tools, including third-party AI solutions, to help its employees and agents make faster, better decisions.

Palo Alto, California-based Next Insurance, which focuses on commercial insurance for small businesses, was acquired by Munich Re in March for $2.6 billion and has over 600,000 business customers.

As the largest global insurers have been around for more than a century and their business models have changed very little, the infusion of AI and Insurtech companies could be the catalyst for accelerated transformation in the insurance industry.