As the digital future moves from the threat of disruption to the promise of transformation, insurers and their actuaries are looking more closely at how they can find the most favorable partners to jump-start their innovations in this field.
At the CAS Ratemaking, Product and Modeling (RPM) seminar in Boston last March, three entrepreneurs were present to describe how insurers can build a bridge to Silicon Valley:
- Piyush Singh of Terrene Labs, a firm that specializes in the process of gleaning information about the risk of a small business insurance policy from basic policyholder inputs (e.g., name/address/phone number/website address).
- Hubert Byron III, director of sales at Omniscience, whose software automates the underwriting process.
- Geoffrey Werner, FCAS, of Octo Advisory, a telematics provider.
They talked a little about themselves and their products and, in a question-and-answer format, they described how insurers can fold the promise of digital technology into the insurance value chain. The session gave insights into how insurtechs operate and tips on how insurers can turn the promise of big data into successful insurance products.
The session was coordinated by Veronique Grenon, FCAS, an insurtech research lead with Guy Carpenter.
Two panelists, Singh and Werner, had worked at property-casualty insurers before.
Singh worked in information technology before moving to Terrene Labs (the data provider) and joked that he left insurance because he “did not want to do one more iteration of the deployment of a policy processing system.” He also noted that he felt that corporate jobs were becoming “90% noise/10% strategy.” His current job is 90/10 the other way.
Werner worked at two major insurers and a consulting firm before ending up at Octo Advisory (the telematics provider). He also coauthored “Basic Ratemaking,” the text at the heart of the CAS Exam 5 syllabus. Inside the property-casualty world, Werner liked implementing new processes. “I have always liked innovation,” he says. “I could do that day in and day out.” So for him the shift to insurtech felt natural.
Byron followed a non-insurance path. He went to Omniscience (the underwriting toolkit maker) from management consulting, where he had come to believe that applications using artificial intelligence and machine learning would be growing fast. He found those topics interesting.
The floor was open for attendees to ask panelists questions. The following are a few of these questions and answers.
Q: How do you know if an insurtech is “for real” and whether the company can deliver on its promise?
Singh cautions skepticism for any firm that leans hard on buzzwords. Carriers can be “sucked into” believing empty claims and promotional press releases. He suggests that the company look at what it needs to create a strategic competitive advantage and see if the product helps achieve those business needs. Also, the product the company seeks should be sustainable.
Werner says some vendors have built models but lack the data to drive it. Look for proof, he suggests. “I’d want to make sure they aren’t talking about expectations — [that] they are talking about actuals.”
Q: Insurtechs don’t employ many people with insurance backgrounds. Would hiring more help them create better, faster products?
Werner says his actuarial/insurance background gives him credibility. “When I walk into an insurance company, I know what you need.” But he says insurtechs also need people with “a mindset of innovation and change.” It would be best to have a mix of expertise and entrepreneurial drive.
One insurtech that Singh had heard of did not know what an endorsement was. It is not essential to know all the finer nuances of the industry, he adds, “[but] we truly need to understand the business and where the opportunities lie in terms of potential value proposition for the carriers.”
Q: How should companies handle the challenge of manipulating and storing data?
All of the panelists counsel against completely integrating data from all sources. Singh suggests keeping the core transaction in one system (a policy administration system, for example) and putting risk evaluation information (which would drive underwriting and actuarial departments) into another system. It is simpler to administer and costs a lot less, he says.
Byron recommends that companies be agile in handling data storage, creating multiple databases for third-party data and then joining them to their internal data.
Werner notes that the huge volume of telematics data requires special treatment to get the most value out of it. It is straightforward, he says, to use telematics data to supplement or replace current rating variables, correlating the number of times a driver slams on the brakes to that driver’s chance of being in an accident. Doing so loses value, though, by not looking for all the variables that can cause accidents to happen at the same time.
He also cautions that different companies arrange their data differently, and without a careful system to coordinate all that incoming information, “you are going to have a mess on your hands.”
Q: Why doesn’t implementation happen more rapidly?
Byron notes that larger companies usually want to build their own systems, and it can take time to learn what needs to be done before the company can actually do it. Sometimes a model can be built with limited data, but it is a challenge scaling it up.
Werner says companies wonder whether regulators will accept an innovation. “You are talking about lots of battles in uncharted land.” Sometimes the concern is warranted, but “sometimes we are not giving regulators enough credit,” he says.
Q: What qualities should actuaries have to help transform the industry?
Werner thinks that, as they face the future, actuaries need to be cognizant that others (read: data scientists) are doing work that used to be exclusive to actuaries.
Actuaries remain valuable because of their deep knowledge of the insurance business, and they can build on that strength.
“We need to be keeping abreast of things,” he says. “If we continue to do that, we will continue to be the most valuable talent in the insurance industry.”