Fintech Finance presents: The Insurtech Magazine 04

MAGAZINE

ISSUE#4

THE

INSURTECH RU RDY 4 RCS?

How next-gen texting is transforming CX

MEET TWO OF THE TOP DOGS IN PET INSURTECH

BOW! S R E Z WOW

LET ME TELL YOU A STORY...

The new reporting rule that’s unlocking innovation

CHOOSE YOUR PLATFORM

How every insurer can ‘be a Lemonade’

INSIGHTS FROM Nationwide ● Fintech Global ● Aptitude Software ● SmartStream

Nucoro ● Trulioo ● ActiveQuote ● Instanda ● Bought By Many ● Zipwhip ● Q_Perior

Three ways to drive revenue and add customer value: Simplicity. Ease. Speed.

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At Chubb, we value our partnerships. We help banks and financial institutions deepen and expand their customer relationships by providing insurance solutions that addresses meaningful financial and life needs.

To learn more about how a partnership could benefit you, visit chubb.com.

©2020 Chubb. Chubb is the largest publicly traded property and casualty insurer in the world. Coverages underwritten by one or more subsidiary companies. Not all coverages available in all jurisdictions. Chubb,® its logo, and Chubb. Insured.SM are protected trademarks of Chubb.

CONTENTS

PET INSURANCE 4 How to stay top dog in insurance Fortune 100 company Nationwide keeps its #1 position in the US pet insurance market through continuous investment in emerging technologies

8 Getting CX purrfect The UK’s biggest insurtech fund raise so far was secured by a pet insurer in mid-pandemic. What’s Bought By Many got that others haven’t?

REGTECH 11 IFRS 17: The new supermodel The long-awaited International Financial Reporting Standards will make reporting streamlined and powerful

14 A catalyst for change Aptitude Software and Q_PERIOR discuss how IFRS 17 could transform digital and cultural frameworks

17 KYC-starting transformation Deciding where to target insurtech investment is a difficult task. Identity verification provider Trulioo suggests you start with the fundamentals

PLATFORMIFICATION 22 Quenching demand INSTANDA’s CEO on why every insurer can ‘be a Lemonade’

26 5 principles of creative disruption

THEINSURTECHVIEW

2020

ISSUE #4

I’ve spent the better part of a week trying to sort out the paperwork for a pet insurance claim. Downloading forms, filling them in by hand and scanning them into emails.

The call centre handler was polite and helpful when I got through but, to be honest, I've better things to do than play paper chase and telephone tag... it’s not even MY dog, it’s my mother’s!

With a surge in pet ownership created by the pandemic, insurers have experienced a corresponding spike in requests for cover – not just in the UK, but across the world. And this new generation who found love in lockdown are unlikely to put up with services that aren’t end-to-end digital and accomplished on a mobile.

Our cover story demonstrates that both legacy and challenger insurers can perform well in this regard. It’s all about bringing data to heel – what Bought By Many’s chief commercial officer Charlotte Halkett describes on page 8 as using its ‘informational advantage’ to inform not

only the automated experience but also the human-to-human one.

That doesn’t just go for pet insurers, of course, nor is it purely a phenomenon of insurance service in the West. In the Asia-Pacific (APAC) region, the home of the super app (explored on page 29), where insurance is even built into ride-hailing platforms, some markets still prefer talking to a real-life agent.

While making all this simultaneously possible and affordable might have seemed unrealistic just a few years ago, now it is not just achievable but inescapable… even old dogs can learn new tricks.

Editor, Sue Scott Did you recognise last issue’s ‘spine tingler’? “Beep-beep-beep” was Sputnik!

We ask the founder of the first health insurance PCW, ActiveQuote: is there a magic pill for digital success?

29 Learning from the super apps

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Post-COVID lessons in the APAC region

CUSTOMER COMMUNICATION 30 RU there?

Texting is about to make a giant leap in sophistication. It’s time insurers got the message, says Zipwhip

COMMENTARY 32 When the wave’s high... ride it Insurers need to innovate now and startups are ready to meet the challenge, writes FinTech Global

AI & AUTOMATION 34 The good, the bad and the ugly SmartStream has pioneered the use of AI in reconciliations. But dirty data isn’t just a financial burden in insurance

37 Diversifying now to insure tomorrow How Swiss Risk & Care saw an opportunity to use Nucoro’s wealth tech to create a diversified future www.fintech.finance

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THEINSURTECHMAGAZINE2020 EXECUTIVE EDITOR Ali Paterson EDITOR Sue Scott ART DIRECTOR Chris Swales ONLINE EDITOR Eleanor Hazelton PHOTOGRAPHER Jordan “Dusty” Drew US CORRESPONDENT Jacob Bouer

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ISSUE #4 All Rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, photocopying or otherwise, without prior permission of the publisher and copyright owner. While every effort has been made to ensure the accuracy of the information in this publication, the publisher accepts no responsibility for errors or omissions.

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Issue 4 | TheInsurtechMagazine

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PET INSURANCE

Fortune 100 company Nationwide keeps its #1 position in the US pet insurance market through continuous investment in emerging insurtech and startups, as Vice President Michael Fulton explains Nationwide has a long and noble pedigree as a US-based insurance and financial services provider.

A mutual, set up in 1925 to protect Ohio farmers, it’s morphed into a Fortune 100 company through expansion and acquisitions, including, in 2009, Veterinary Pet Insurance (VPI), which had issued the country’s first pet insurance policy to canine star Lassie (or, at least, one of them!) in 1982.

Since VPI came on board, Nationwide has grown to become the biggest pet insurer in the States, and it’s where much of the company’s digital innovation is now focussed as it strives to keep up with an unexpected COVID-19-shaped spike in demand for cover.

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As a nation, Americans have been slow to afford the same protection to their pets as they have to other areas of their lives – the US languishes near the bottom of the world league for insuring man’s best friend and other animals, at under three per cent for cats and dogs. But a recent survey by Nationwide partner, the Human-Animal Bond Research Institute, has found that the bond is getting stronger between people and their animals, as they help them cope with the challenges of a pandemic that has already claimed more than 130,000 American lives. And, perhaps because of the heightened sense of risk, they want them insured.

Mike Fulton, an associate vice-president at Nationwide and part of its technology strategy and innovation team, knows that embracing technology such as open application programming interfaces (APIs), will be a prerequisite in its quest to hold on to its mantle as the sector’s top dog across all categories of financial services.

“It’s really about making sure that you’ve got the right operational backbone in place, and then you’re able to interact, through APIs, with your digital platform. That gives your digital platform the flexibility to change, to support new products, to do all the things you want to do to be able to innovate,” he says. “If you don’t have an operational backbone that’s API-enabled, that has the

ability for an organisation to connect their digital platform into it, it’s really tough to do the innovations you want to do.

“Our pet technology team, led by Nationwide Pet CIO Bill Snider, has just completed a transformation programme where we have re-designed and reimplemented our operational backbone for the pet insurance business. That is now stable, productive and allows us to have a base to work off, so we can connect to a new digital platform for the pet business, which will help us to drive more innovation across the organisation. We’re really excited about what’s to come.”

Already, Nationwide’s tie-up with pet care technology firm VitusVet allows policyholders to use a mobile app to file pet insurance claims. Such is its success that, earlier in 2020, VitusVet was able to announce it had surpassed one million pet insurance claims filed through the app on behalf of Nationwide.

Fulton says there is firm evidence of what he calls a ‘pandemic pet boom’.

“We’re seeing a huge spike in people onboarding onto the product, it’s been a big growth area for us over the last five years, but the pandemic has really caused a rise in new policies,” he says. “It’s starting to cause a big spike in claims, as well.

“Our pet claims team, pet IT team, and technology innovation team are

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partnering on some unique uses of artificial intelligence (AI) in the claims space to try to really drive productivity and speed into claims processing for the pet business.

We’re trying to figure out how to make that overall experience better, even in the context of a business that is growing 20 to 30 per cent, due to the pandemic, which is hard to keep up with.”

That feeds directly into Nationwide’s broader strategic focus – a shift from payout to prevention, which is expected to be financially beneficial to both the company and its customers.

Fulton says: “We believe that the way that technology is maturing allows us to better understand the environment our customers live and operate in. We can now leverage our 96 years of history, of claims data, to help predict bad things that might happen and proactively protect people from them. That’s been a big shift for us.

“The other shift is this element of extraordinary care. Nationwide has always been a big believer in taking care of our customers and providing a premium customer service, but we’re trying to take that to the next level, to imagine new ways of coming alongside our members, and providing something that surprises and delights them in moments of need.”

He cites an example of this in the pet health sector, where Nationwide, although not yet at the stage of

incorporating genetics, is looking at a range of other innovative ways of protecting pet health.

“We are having some conversations about the potential role of pet wearables and how they could help owners keep their dogs and cats healthy and safe,” says Fulton.

In December 2019, Nationwide opened a new innovation centre, The CoOperative, in Columbus, Ohio, close to its HQ. While this ‘design thinking space’ will initially be used

by Nationwide and its associates, the goal is to use it to engage the community, as well as hosting events that attract innovators from all over the country and the world to Columbus, which is already a thriving fintech centre where Nationwide is one of the biggest employers.

The Co-Operative is intended to accelerate innovation across Nationwide, which began its fintech journey as the first major US insurer to launch an app for iPhone users, creating a platform for members to start the claims process with a photo, find agents and receive quotes, in 2009.

Ten years on and 2019 saw a flurry of innovations, including the launch of SPIRE, an ‘easy-to-understand digital auto insurance platform, built on fair and straightforward principles’, accessible from a smartphone. Meanwhile, Nationwide’s venture capital team continues to invest in high-growth startups across insurance and financial services, including Upstream Security, an Israel-based company providing cybersecurity for connected vehicles; Socotra, a California-based insurtech offering reimagined insurance IT for policy administration, underwriting, claims, billing and more; Betterview, a provider of property insights and workflow tools for insurance companies to improve the customer experience by accelerating decisions and reducing risk; Nexar, a smart connected dash cam system that automatically detects and records driving incidents, saving footage to the driver’s phone and the Cloud; BlueVine’s small business online lending platform; insurance marketplace Insurify; online, AI-enabled small business insurance platform Next Insurance; and digital insurance agency Matic.

If you don’t have an operational backbone that’s API-enabled... it’s really tough to do the innovations you want to do

Best in breed: Nationwide is bringing AI to heel

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Issue 4 | TheInsurtechMagazine

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PET INSURANCE The company’s SmartRide and SmartMiles vehicle policies are black box data-driven to help reduce premiums for those who demonstrate safe driving techniques in the case of the former and those who commonly only clock up low miles in the latter.

In the business insurance sector, Nationwide has leveraged APIs from Intuit QuickBooks to develop its Business Solutions Center Digital Assistant. The app uses AI, coupled with Nationwide’s extensive Business Solutions Center library of curated content and a policyholder’s QuickBooks data to provide customised

Fast-moving world: Smart cars aren’t saving insurers money... yet

advice on a variety of topics related to running a small business.

Fulton says Nationwide's technology innovation lab team, which includes three innovation analysts and nine full stack software engineers, employ a six-step programme when devising innovations, those being concept, canvas, pitch, learning plan, prototype and lessons learned, which combine to bench-test crucial elements such as customer feedback and, vitally, viability.

And while successes such as its small businesses app make it to market after undergoing that process, the company is not afraid to pull the plug on ideas that fail to tick all the boxes.

“One we stopped along the way, for example, was a project called Trip Replay,” Fulton explains. “The question we started with was could we create a visual representation of an auto accident from the connected car and telematics data we had from the vehicle? And so we spent some time looking at the data we had,

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we went through our process, created a prototype, put it in front of our analysts, and what we found was that the ability to visualise the accident just from sensor data was interesting, but it wasn’t fundamentally a step-change benefit to our claims analysts. So we killed that project and put it on the shelf. Sometimes innovations go all the way, sometimes they don’t, and you just have to be OK with that.”

Continuous technology innovation will be needed

have to keep in-step with a fast-moving world. Challenges now being thrown up as a result of climate change and technological advances in other industries, such as car makers, says Fulton.

“We are starting to see an increase in weatherrelated events and in their severity: a lot of hurricanes, tornadoes, a tremendous amount of wildfires, and the impact of all those on the homeowner is increasing,” he says.

“In the auto space, we are also seeing an increase in severity. We’re putting more and more technology into our vehicles, and so, when you do get into an accident, it’s a lot more expensive to fix.

That technology hasn’t yet progressed to the point where it’s starting to have a measurable impact on the frequency of claims but it is already having a measurable impact on the severity of claims.

“So, trying to get the pricing right, trying to get the value equation right for members, is probably the number one thing we’ve been trying to address from a Nationwide perspective.”

Sometimes innovations go all the way, sometimes they don’t, and you just have to be OK with that

Fintech trivia:

A tale of two mutuals Sharing roots as mutuals and using similar ‘on your side’ company slogans over the years, it is easy to see why US financial services giant Nationwide occasionally gets confused with the largest building society in the world – the UK’s Nationwide.

The former, founded in 1926, is a mere startup compared to the venerable British institution, which can trace its roots back 175 years. But with both organisations highly active on social media platforms, capacity for confusion is even greater

today, so they ‘mutually’ follow one another and enjoy Twitter banter, such as when passing on customer queries posted in error to one or the other Nationwide accounts.

Mike Fulton enjoys the unofficial links between the two organisations, which even resulted in him paying a visit to the headquarters of his company’s namesake in Swindon, UK, just to say ‘hi’.

“It’s pretty common, especially in Europe, for people to confuse our organisations, so it was fun when I got to actually visit!” he says.

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PET INSURANCE

Back in 1890, a Swedish gentleman by the name of Claes Virgin had the idea of insuring horses and other animals that ploughed the country’s fields and pulled its carriages. An instant hit, his policies were based on the understanding that working animals were financial investments worth protecting.

But Virgin’s policies didn’t die out with the soon-to-be-overtaken handsom cab. Rather, they evolved to cover Sweden’s growing population of pets.

The world’s first protection for a pooch was written there in 1924.

Fast forward almost 100 years and Swedes lead the world in indemnifying their emotional assets: 60 per cent of their pets are insured and it’s a market that UK-based Bought By Many is intent on getting its paws on. But that’s just the

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The biggest insurtech fundraise so far in the UK was secured by a pet insurer in the middle of a pandemic. So what has Bought By Many got that other’s haven’t?

We asked its Chief Commercial Officer Charlotte Halkett start. Having this year closed the biggest UK insurtech fundraise to date, its sights are set on pet lovers across the world.

The fact that the value of a pet is not measured in the cost of its replacement or repair, but by the affection in which it is held, defines its approach.

“Motor insurance is a stress purchase, because you’re told you have to get it, and I’d describe home insurance almost as a

fear purchase. But pet insurance is different: it’s a love purchase,” says Charlotte Halkett, Bought By Many’s CCO. “I’ve been involved in insurtech for the last 10 years and pet insurance is unlike any other personal and casualty (P&C) line of business. It’s the way people buy it, the way they think about it, the way you have to think about their customer journey.

The usual concept of an insured item doesn’t really work in pet insurance.”

Having begun life offering niche cover in multiple sectors, Bought By Many began to focus its energies on pets in 2017. It amassed some 40,000 comments from owners that helped pinpoint exactly what they wanted a pet insurance policy to fulfil and built this insight into its digital DNA. It continues to genetically improve the business, which leverages both its tech and its people to create an intensely customer-focussed hybrid www.fintech.finance

model that is quite different to that of its – generally much larger – rivals.

“It’s all about using our informational advantage, as an insurer, to realise ‘this is the cover that people genuinely need’,” says Halkett. “We focus on simplicity, in terms of being able to buy the product, being able to understand the product and being able to make a claim. We also take a different approach to pre-existing conditions, the age of a pet and prices on renewal. Bought

By Many has never charged more for renewing customers than new business and that’s incredibly unusual in the insurance world, but it’s all about standing up for what we believe is right in insurance, and how we would want to be treated as customers – which a lot of us are.

“We think about the pet parents we have as being members of the Bought By Many family, and ask ourselves ‘what does great mean?’ at every stage: at onboarding, when they make a claim and, sadly, if the pet passes away. It’s all about creating a really different experience. In order to do that, we have to think about the way the product is set up from the beginning, not just about delivering a great experience if somebody has to make a claim or a call.”

Soon after the onset of the COVID-19 pandemic, Bought By Many ran a survey among customers to see what their biggest fear was with regard to their pets, and responded to their top two concerns. Firstly, although there’s no evidence that pets can pass on or contract the virus, it reassured customers that their pet would be covered in the event that evidence changed.

Secondly, as many pet owners couldn't get annual health checks for their pets because vets stopped routine work, Bought By Many confirmed that missed health checks during the pandemic would not impact their policies. It was also the first pet insurance provider to partner with the FirstVet app, offering customers free video consultations with vets, and it set up the Dogcast podcast to help keep them positive, hosted by sports commentator Clare Balding.

Meanwhile, its Cloud-native architecture allowed it to transition smoothly to home working the moment UK businesses were advised to do so under COVID-19 containment measures. It dropped just one call in 800 that day, while others struggled to maintain service levels.

Pandemic-related news somewhat swamped the announcement that Bought www.fintech.finance

By Many had closed a Series C funding round, which had seen the business courted by six suitors. It eventually settled on a growth and equity investment of £78.4million, led by America’s FTV Capital, which counts several major underwriters among its network, giving the deal additional strategic value.

It’s not hard to see why Bought By Many attracted such interest at a time of investor uncertainty. Sales of its cat and dog policies have increased by more than 150 per cent in the last year so that it now covers 200,000 pets in the UK and Sweden, where it’s been active since late last year. The pandemic itself has driven business – at least, so far. There was a big uptick in young animal policies as owners took new-borns on early to avoid the risk of them getting caught in lockdown, while it’s also benefited from a worldwide increase in the number of pet adoptions.

Pet parents’ first choice While the spike in demand those two trends created may well flatten as lockdown eases, the award-winning approach to customer service enabled by Bought By Many’s digital agility, won’t.

Halkett is particularly proud of picking up first prize at the 2019 Moneywise Awards.

“Bought By Many wasn’t even in the drop-down list of insurance providers customers could pick,” Halkett recalls, “so 30,000 customers voted on this award, and our customers, bless them, typed in our name in order to make us the Most Trusted Pet Insurance Provider in the UK. “We use our own proprietary technology to make things simpler for customers,” adds Halkett. “We are really focussed on the customers’ pain points, at every single stage. Most of our interactions are online, because we make that very simple for customers, but pet insurance is an emotional purchase, so sometimes they really do need to call. We have a very different ethos within our service centres, which is about being unscripted. We recruit our fantastic call centre staff for their empathy above all else, with the heavy lifting all performed by our technology.”

When Bought By Many, which is underwritten by Great Lakes Insurance SE,

entered the market, it was the first UK pet insurance provider to offer online claims processing, and the first to remove the 14-day waiting period to claim for switchers. With the recent injection of cash by investors, Halkett says, it will ‘be looking for really innovative ways to expand within the UK and internationally and think about the next generation of what we’re doing’. “It’s all about being the world’s most-loved pet insurer, and that journey’s very exciting,” she adds.

While, in the UK, 30 per cent of pets are insured, in the US it’s less than three per cent and in the two fastest-growing markets – India and China – pet insurance is just as rare. If Bought By Many can get a foothold beyond Europe it will be like a dog with two tails.

Wherever they are, Halkett is keen for customers to see Bought By Many less as an insurer and more as a ‘risk partner’, working with owners in the best interests of their pet. And it explores every data avenue it can to make that relationship the best it can be. Using data to offer early-warning advice and good care practices to reduce risk is a trend increasingly seen in other areas of the market, specifically in health insurance.

The first fitness trackers for pets linked to an insurance product became a feature of the UK market last year.

Would Bought By Many consider using them?

“I’m an actuary, by background, and nothing gets me more excited than being able to delve into completely new sources of data,” says Halkett. “So, yes, we’re absolutely going to be investigating them, seeing what would be useful and more helpful for our customers. If I can find things that will help them keep their pets healthy and happy for longer, that will make me really excited. If I can say ‘you have a six-year-old Labrador. Doing this or using these sorts of things might help keep your pet running around with you for longer’, then I’m absolutely going to be doing that because that’s when insurance can move beyond just being there for those superhero, rescue-you moments.

“What’s really important in all this is that we don’t lose sight of what we’re trying to do, which is fantastic customer service.”

It’s all about using our informational advantage

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REGTECH

IFRS 17: The super model Streamlined and powerful, the long-awaited International Financial Reporting Standards (IFRS) 17 will have a major impact on insurers’ back-end processes and how they report to stakeholders. Hannah Duncan looks at how and why IFRS 17 came about, what it’s here to achieve and, most importantly, what it unlocks for insurtech International Financial Reporting Standards (IFRS) 17 isn’t any ordinary accounting benchmark, it’s a super standard – and it’s rescuing the industry.

Creating a common global language for the reporting of all insurance contracts, the standard could strike down decades of confusing accounting misalignments and facilitate much greater transparency for investors and other stakeholders.

However, as the saying goes, you can’t make an omelette without breaking a few eggs, and things are likely to get a lot more stressful for insurers before they get any better.

After a series of delays, IFRS 17 will now need to be implemented within the next two-and-a-half years. This gives opportunistic insurtech firms an extended window to get involved.

What is IFRS 17?

Remember Esperanto, the universal language idea? It may not have the same poetic name, but IFRS 17 does make it easier for insurance industry insiders and outsiders to see what a company’s financial position is. It’s a common standard for reporting insurance contracts in the countries that have signed up to the IFRS global standards framework.

The aim of IFRS 17 is to bring the reporting of insurance contractsglobally into line, to improve transparency and comparability between insurers themselves and between insurance and other industries. This will be accomplished by firstly, introducing a single accounting model; secondly by making the new model highly transparent; and, thirdly, by aligning IFRS 17 with other accounting standards, such as Solvency II. Insurers will need to show a number of things. These

include financial statements with a new chart of accounts, the profit margin they make on services, the expected real-time value of cash flows and any risk adjustments, too. The new information rules will apply to any newly-issued insurance and re-insurance contracts, as well as any which are already held.

Investment contracts with discretionary participation features will also need to comply.

Creating a common global language for the reporting of all insurance contracts, the standard could strike down decades of confusing accounting misalignments and facilitate transparency

Sleek reporting: But a lot of automation will need to go on under the bonnet

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REGTECH The change to the way business performance is measured is likely to have a far-reaching impact on an insurance company’s operations, systems and people as it triggers completely new accounting approaches. One major insurer that’s already taken the opportunity for a major rethink is Swiss Re. It is working with SAP accounting software to come up with what it calls a ‘true multi-GAAP (general accepted accounting principles)’, which it has called the Baseline Delta Approach. It believes this will have a number of future financial benefits for the organisation, not least in guaranteeing a ‘single source of truth’ – one comprehensive, integrated database for risk and finance data with a processing system that can handle big volumes and a single platform for assets and liabilities, among other advantages.

Where did IFRS 17 come from?

IFRS 17 has been a long time in the making and, like all great movements, began with a vision. As far back as 1997, the International Accounting Standards Committee (IASC) set to work on creating some common processes. For some time, they’d recognised the need for better alignment within insurance reporting and contracts.

This would improve transparency and help to make more accurate comparisons.

In 2004, IFRS 4 hit insurance reporting systems as an interim solution.

Finally, after more than a decade of comments, drafts and feedback, IFRS 17 replaced IFRS 4 in 2017. It comes into effect in January 2023, giving firms additional time to implement the new standards into their processes and contracts.

IFRS 17 has gathered worldwide support, but there are also some bumps in the road. It’s faced criticism for being too focussed on the vision, without considering the details. Some firms also feel that the amount of work required to make it happen will be overwhelming.

Super challenges Uphauling insurance accounting systems will be a tremendous job. Insurance companies in the European Union already had to untangle and reorganise their reporting and transparency processes with Solvency II back in 2016. For many firms, this took a significant investment in people, data and systems. IFRS 17 adds fresh layers of complexity to the mix.

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According to Deloitte, regulatory requirements in the insurance industry are often met with tactical solutions or emergency workarounds, rather than long-term infrastructure. This might be part of the reason why processes are often complex, disjointed or inter-dependant.

But IFRS demands an unprecedented level of joined-up thinking.

Another major challenge that IFRS 17 will throw at insurers will be the requirement for more data. They’ll now need to provide much more detail, and in greater volumes.

And it’s not only for existing contracts or new contracts – the data requirements are historic, too. Insurers will need to dig up legacy contracts and fill in the data gaps retrospectively. This is a headache of a job, and one that could be too much for some of the systems currently in place, especially within the timeframe.

Yet, with compliance departments bursting at the seams trying to meet all the new regulations and stamp everything with a human seal of approval, something has to give. The challenge of digitisation may be more mental than technical. The reins need to be handed over to agile tech developers who can create architecture away from all the in-house policies. For the middle management teams who worry about their jobs, relevance and deadlines, that is a tough call.

What opportunities lie ahead?

According to EY, the high data granularity as well as data modelling, administration and utilisation demanded by IFRS 17, will require ‘a special IT infrastructure and a realignment of business processes’.

In short, insurers will need to capture more data and process it faster. Those that

KEY DIFFERENCES BETWEEN IFRS 4 AND IFRS 17 Different accounting policies per insurance contract Lack of comparability of insurance companies across countries Lack of comparability of insurance versus non-insurance companies Estimates not updated Difficult to see key drivers of profit Discount rate based on investment The last major stumbling block, which might make IFRS 17 tricky to implement, is the classic incumbent issue, a lack of digitisation. Manual processes that should have been automated away a decade ago are still going strong for many insurers.

Although pressure on firms to transform has been building for some time now, the attempts so far are not really hitting the spot. Getting through the IFRS 17 implementation will require, for most firms, new modelling and computer capabilities.

This will apply across processes like cash flow, risk adjustments, discounting, CSM (contractual service margin) calculations and more. But, more importantly, it may require a new mindset, too.

Across incumbent industries, there’s been a palpable fear that robots will take away livelihoods, rather than freeing employees to get on with value-adding work, and perhaps this view still lingers.

One accounting policy for all insurance contracts Insurance companies across countries become better comparable Similar accounting methods for insurance and non-insurance companies Estimates are updated each reporting period Key drivers of profit (investment versus underwriting) are made transparent Discount rate based on the cash flows of the contract take a more visionary, rather than tick-box, view of implementing the new standards, will likely drive demand for automated gathering of business intelligence, via data visualisation and predictive modelling tools.

And there will be a need to develop integrated systems based on greater collaboration, understanding and knowledge-sharing across an organisation, especially as actuarial and accounting silos dissolve to meet the standard’s objectives.

If all this disruption was required to meet one compliance goal, the costs might appear disproportionate. But, as one supplier has observed, ‘the granularity of data required for IFRS 17 may drive more targeted uses of the data and uncover insights previously unknown’.

As insurers stand on the cusp of a truly transformational time in our financial history, that surely is the greater prize. www.fintech.finance

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REGTECH

FLASH POINT: IFRS 17 is ‘the biggest change in 20 years’

A catalyst for change Implemented correctly, the new IFRS accounting standard for reporting of insurance contracts could have a transformational impact on businesses’ digital and cultural frameworks. Brian Heale of Aptitude Software and Eduardo D’Alma of Q_PERIOR discuss their options Insurers would be wise to treat the implementation of new global accounting standards for insurance contracts as more than just a tactical compliance project.

They can use the opportunity to re-think finance and compliance processes and future use of data to modernise their finance function and achieve strategic value far beyond compliance. That’s the view of insurance experts at London-based Aptitude Software, which provides finance, accounting and regulatory software, and is working on IFRS 17 implementations with insurers across the globe, and change management consultancy for the insurance industry, Q_PERIOR. We brought the two companies together to discuss International Financial Reporting Standards (IFRS) 17, described

by EY as ‘the most significant change to insurance accounting requirements in 20 years’ in enabling more comparable and transparent financial reporting of

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insurance contracts across the world. The date for compliance was 2022. Although that has now been delayed by a year, IFRS 17’s complexity means there is still a lot to do in a short time.

Aptitude’s IFRS 17 Solution is purpose built, comprising of a calculation engine to manage groupings, cohorts, risk portfolios and supplement calculations, such as contractual service margin, and an accounting hub that consolidates accounting and actuarial data and provides advanced, multi-generally accepted accounting principles (GAAP), multi-entity, multi-currency accounting subledger capabilities with benefits for both finance and actuarial departments.

It also offers integration with actuarial, finance and policy systems, including SAP and Oracle General Ledger, and can deliver high-volume and large-scale GAAP accounting.

The solution enables insurers to leverage all IFRS 17 measurement approaches, including the general

measurement model (GMM), premium allocation approach (PAA) and the variable fee approach (VFA).

Brian Heale, senior insurance and IFRS 17 consultant at Aptitude, says that whichever approach is followed, the standard’s introduction will mean the accounting and actuarial worlds will need to work closer than ever before.

But there are both business and technical challenges to that, says Eduardo D’Alma, a partner at change management consultancy Q_PERIOR... here’s why.

THE INSURTECH MAGAZINE: Do you think insurers underestimated the complexity of IFRS 17?

BRIAN HEALE: In our experience of implementing more than a dozen IFRS 17 projects so far, most clients have significantly underestimated the complexity. To be fair, I think software vendors may have also underestimated the complexity: converting the actuarial results/transactional data automatically www.fintech.finance

into accounting transactions has been particularly complex. In addition, the standard is principles-based rather than a static framework, as with Solvency II, so the interpretation of the calculation methodologies (e.g. loss component) and accounting choices that you have has also been a significant problem.

EDUARDO D’ALMA: When the industry first started looking at it, IFRS 17 was seen as being very technical from a business perspective, but now we’re moving more towards the storytelling phase [using it in reporting], we need to think more about how we use IFRS 17 as a tool to influence the message we want to get across to investors. We also need to look at the comparison between IFRS 17 and all the other regulatory regimes that the majority of our international insurance customers have to adhere to.

TIM: What choices do insurers have when it comes to implementation of IFRS 17 and what impact will those choices have on their businesses?

BH: I think implementing IFRS 17 will have a significant impact across an insurer’s actuarial and finance operating model and this, to a degree, will be reflected in the size of the project.

Understanding those implications will be essential to developing the appropriate strategies and responses.

The size and cost of an IFRS 17 project will vary significantly, dependent on the approach taken by an insurer, which can be categorised in three ways. One is minimal compliance – where the insurer has taken the view that this is purely a compliance exercise and is going to spend minimal time and effort to achieve the objective. This might be fine for small insurers but, generally, it’s not been adopted by the larger ones. I think if you adopt an approach of minimal compliance, you’re almost taking a backwards step and doing what insurers did with Solvency II. Then there’s minimum compliance with added efficiencies to improve the reporting cycles and some automation.

The third approach uses IFRS 17 as a catalyst for a full digital finance and actuarial transformation programme, that not only supports IFRS 17 but also a whole raft of other regulatory regimes. www.fintech.finance

IFRS 17 will require insurers to look at all aspects of their finances, actuarial, reporting processes and governance systems, ideally based on a dedicated target operating model for IFRS 17, which we have seen very few of.

ED’A: I think it’s important to understand that we will have a major shift in responsibilities. The involvement of the actuarial departments in what goes into the balance sheet and income statement is rapidly shifting because of the way that IFRS 17 is collecting the numbers. That also means that every project has a change management component – from an organisational perspective – that we need to tackle as well.

BH: Clients are going to need the ability to undertake simulation and forecasting activities because there are going to be new key performance indicator (KPI) metrics: the ability, prior to transition, to be able to look at a number of scenarios that generate results, change various assumptions and produce a whole range of outputs.

So, contractual service margin, risk adjustment and insurance revenue is going to be important. Then the actuaries look through those and use their expert judgment to define what actually is a good set of IFRS 17 results.

TIM: What can insurers do in terms of their organisational culture to prepare for IFRS 17?

TIM: How can insurers make sure ED’A: It is important to operate in a the changes necessary for IFRS 17 lean fashion and also have a certain have been implemented correctly? level of industrialisation available. My hope is that this is a good starting point ED’A: We recommend choosing the for them to realise that there’s more to most stressful moment – either win if we try to unify, than there is to lose. around the quarterly or year-end results, and use the closing calendar as a basis for BH: Many insurers are looking at use cases, or stories. That helps firms both adopting a more integrated finance understand the sequence of work they and actuarial type of approach. As Insurers have to do and also whether there are any delve more deeply into IFRS 17, they may gaps in their design. It also helps them learn from the experience from Solvency II, to determine what level of automation and take a more strategic approach and is needed to look at how to improve and automate My hope is that meet deadlines. their actuarial, risk and finance systems. this is a good We also Hopefully, that will help to reduce overall starting point for recommend costs, which remains a key driver. them to realise that testing very One of our clients has used our solution there’s more to win often and to automate their accounting structures if we try to unify, end-to-end, for IFRS 17 and others and, as a result of to ensure that that, had a 70-80 per cent reduction in than there is to lose the individual Eduardo D’Alma manual processes. This has enabled components skilled resources to be Q_PERIOR Automation operate before reallocated; they’ve had of the process, users put them a reduction in their together in sequence. right the way through monthly close cycles by 60 It’s important to really use the per cent and, importantly, from actuarial runs opportunity to create something they’ve reduced the time to final reporting, which is integrated, something, they spend on manual is critical which has a clear ability to adjustments and Brian Heale, be scaled for other purposes. reconciliation through Aptitude Because, let’s face it, the increased automation.

Software regulation is new and, once This highlights applied, will undergo changes.

Eduardo’s point, that I think the endgame should be that automation of the process, right the you have something in place that is way through from actuarial runs to measurably better than what you had final reporting, is critical. And, I think, before you started, that can be leveraged if firms use IFRS 17 as a catalyst to do and is preparing you, in a much better this, it provides them with benefits for way, for a regulatory future. the other reporting regimes, as well.

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Creating a world of financial confidence

Aptitude Software led the market with one of the first IFRS 17 solution sales - now we have clients entering UAT under the new standard.

Visit the Aptitude Software IFRS 17 resources page for a selection of content and practical advice based on IFRS 17 projects in over 46 countries including: • • • •

Why a subledger is becoming an essential part of an IFRS 17 project 7 reasons an IFRS 17 project may fail The hidden complexities of the PAA approach Finding the handover point between actuarial and accounting systems

Learn more www.aptitudesoftware.com info@aptitudesoftware.com

http://bit.ly/apt_IFRS17

REGTECH

KYC-starting transformation Deciding where to target insurtech investment is a difficult task. Identity verification provider Trulioo suggests you start with the fundamentals Insurance is a giant among industries; in the US alone, insurance premiums totalled $1.2trillion in 2017 and the industry had more than $5.7trillion in assets.

The quest for technology to deliver up innovative solutions and lower costs is attracting new entrants and forcing incumbents to adapt.

As insurance is so reliant on data, technology can assist almost every aspect of the industry and, specifically, any that assists in risk-mitigation or risk-transfer can have a significant impact. Consider the internet of things (IoT), where sensors and connectivity are integrated in every imaginable object. Just as fire alarms reduce the damage from fires, embedded sensors in a bridge can warn of imminent failure, reducing the risk and the associated cost of payouts. Car-tracking sensors can monitor use and adjust rates based on driving habits. Weather sensors can alert users of high-risk situations to avoid, thus minimising liability.

Data provides insight to improve risk mitigation strategies and when artificial intelligence (AI) systems are applied to better analyse it and advanced modelling techniques are employed to manipulate scenarios, it can help set more appropriate rates, spot fraudulent claims and point to new cross-selling or gap coverage

www.fintech.finance

opportunities. The rich information provides a path towards more customised insurance, where actuary data becomes ever-more refined and customers benefit from personalised packages. As a result, previously hard-to-insure markets, such as self-employed or marketplace workers, can now get appropriate coverage, tailored to their specific needs; insurance can be offered for a day or a week, and coverage can be extended to specific equipment or obscure situations.

Know your client But, as insurance covers a gamut of sectors, it’s important to note that the impact of insurtech varies among market segments. The low-hanging fruit is areas that have direct touch with the consumer – improving onboarding, for example, is a quick win. Filling in mounds of paperwork has never been an enjoyable customer experience and, now that online and mobile alternatives are commonplace, it’s becoming increasingly important to offer those channels to maintain users.

Understanding who an insurance client is and what risk they may pose is fundamental to the nature of insurance.

Therefore, proper identity verification measures during onboarding are

Scan this to access io Trul o’s Buyer’s Guide to ID verification software

necessary. With mobile and online channels becoming increasingly popular, electronic identity verification (eIDV) enables an applicant to quickly sign up online while still providing the necessary evidence to fulfil regulatory requirements, as well as assisting fraud prevention measures.

Other identity techniques, such as document verification and biometrics, provide additional layers of verification, delivering more security and better risk mitigation.

Identity verification can also assist in a payout scenario. After all, insurers should be extra diligent when paying out funds, so verifying a claimant’s identity can speed up the process as well as flagging potential fraudulent activities.

Properly done, identity verification offers privacy protections to cover different markets’ regulatory requirements.

Insurance documents contain an abundance of confidential information and processes should ensure that the information is protected and that sharing of the information is strictly limited.

Understanding who an insurance client is and what risk they may pose is fundamental The potential of insurtech to decrease risk, provide better coverage, save money, improve both back-end processes and the customer experience (CX) is significant.

Of course, with all the opportunities, it can be difficult to know where to begin.

So why not at the beginning? Providing mobile and online channels to quickly onboard and renew customers is fairly straightforward and promises quick return on investment. With effective eIDV processes in place, risks are mitigated and the customer experience is positive from the start.

A first step: Effective eIDV can mitigate risk and simultaneously improve CX

surtechMagazine

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7

Reasons to ditch link ratios

Link ratios cannot measure calendar year social inflation The assumptions are rarely met by the data No insight into trends in the business Too slow to review No connection to the risk characteristics of the data No early warning system No way to determine whether an answer is good, bad, or ugly

The Mack method is a regression formulation of volume weighted averagelink ratios (chain ladder). The regression formulation means the method can be tested statistically.

Other method variants can be included such asdifferent weights, an intercept (Murphy) and an accident year trend for each development year. All these methods are included in the Extended Link Ratio Family (ELRF) modeling framework.

In the Probabilistic Trend Family (PTF) modeling framework, we identify a parsimonious model describing the trends in the three directions (development, accident, and calendar), along with the volatility about the trend structure.

MaCk!

Mack!

Mack!

Mack!

What quackery is this?

Link ratio methods residuals trend down: Projections too high Consider anonymized Paid Loss data for an Auto Insurance provider (segment: Bodily Injury). The data can be downloaded from: icrfs.me/7reasons The display on the right shows a strong downward trend in the residuals (trend in data minus trend in method) versus calendar year.

This means a link ratio method will grossly overstate the reserve estimates. The Mack method (volume weighted average) gives a total reserve of 902M. The arithmetic average link ratios gives a total reserve of 1.16B.

Above is the forecast table (incremental version) for the Mack method.

The company just paid 202M GBP in 2017 (blue numbers are observed) but the fitted mean value (black numbers) is much higher at 289M. Further, the method is projecting the company will pay 284M GBP in the next calendar year!

The method clearly provides false indications.

The optimal model identified in the Extended Link Ratio Family (ELRF) modeling framework applied to the last five calendar years has trends, intercepts, and very few ratios (because they have no predictive power). The residuals are much improved (left). The trends in the data are more in line with the trends in the method.

The total reserve mean projected from this identified model is 504M – around half the original Mack method projected mean reserve! This is a much better estimate of the reserve mean, but how do we know it’s the best?

Let’s see what is really going on The identified model in the PTF modeling framework has calendar year trends as seen on the right. The calendar year trends are much lower more recently. Trends in other loss types (for instance: Case Reserve Estimates or Number of Claims Closed) can be related to the trends in the paid losses.

The actuary now has a narrative about the data.

Projections from the PTF model are much more realistic. The forecast scenario in PTF, using the 8.7%+_ calendar year trend,projects a mean payment of 223M GBP next year – much more in line with the recent history.

The total mean reserve is 598M. The actuary has control over all future trend assumptions in the PTF modeling framework. These can be related directly to the trends (or volatility) observed in the past – including CREs or NCC. To get in the ballpark of the original forecasts of the Mack method, the future calendar year trend has to increase from the most recent 8.7%+_ calendar year trend to more than 25%+_ for the entire run-off period!

Link Ratio Methods residuals around zero: Projections too low Maybe you think using Incurred Losses gives better estimates than Paid Losses?

Consider the Incurred Loss data from Best’s Schedule P (2011) for Tower Group.

The data can be downloaded from: icrfs.me/7reasons On the left are residuals from the Mack method applied to the Incurred Losses. The zig-zag conflates what is going on.

The total mean reserve projected by the Mack method is: 1.059B. The held reserves by the company as of 2011 were 921.9M. By calculating chain ladder ratios excluding the ‘high’ calendar years of 2009 and 2011, the forecasted total reserve drops to 950M. The held reserves were supported by link ratio methods.

In the PTF modeling framework, Paid Losses and Case Reserves are modeled separately. Note the calendar year trends are not the same in the Paid Losses (left) and Case Reserves (right).

In order to reach the reserves held, the calendar year trend for the future has to change from +11%+_ to -16.85%+_ – a total difference in trend of nearly 28%!!

This is impossible!

Without access to the PTF modeling framework, how would you know whether your projections are meaningful?

• Since 2006 the paid losses have been increasing 11%+_ faster than Earned Premium.

This leads to an 11% increase in loss ratios (not reflected in the company’s held ultimates).

• Since 2007 the Case Reserve Estimates have been fluctuating (thus the masking of trends in the Incurred Losses).

The forecast table on the left assumes the 11%+_ trend continues. The projections are increasing down the accident periods (eg: dev 4) just like the observed paid losses (blue numbers) in dev 0.

On the right is the forecast where the assumed future trend is set to -16.85%. Projected payments are decreasing down the accident periods (dev 4) despite the significant increases in observed paid losses and Earned Premium.

(Tower Group went into administration in the fourth quarter 2013).

Link Ratio Methods residuals trend up: Projections too low Consider anonymized Paid Loss data for a large Worker’s Comp provider. The data can be downloaded from: icrfs.me/7reasons The display on the right shows a strong upward trend in the residuals (trend in data minus trend in method) versus calendar year.

Any link ratio method will grossly understate the reserves – the trend in the method is less than the trend in the data. Using the Mack method (volume weighted average), the total reserve is 839M.

The company just paid 188M USD in 2016 (blue numbers are observed) and the method is projecting the company will pay 152M USD in the next calendar year (black numbers are fitted means).

The method clearly provides false indications.

If every successive year you take weighted average link ratios of the last four years,each year the estimates of the prior year ultimates will increase, and projections of the paid losses for the next year will be too low.

To illustrate this, estimate the four year weighted average each valuation period from 2011 through to 2016 and plot the prior year ultimates.

Assuming the same link ratio method is applied in each of the four years, the company is in catch up mode.

For this particular portfolio, the social inflation is very high.

The optimal PTF model, whose calendar year trends are displayed on the right, projects a total mean reserve of 1.309B if the trend of 21.46%+_ continues for several years.

Link ratio type methods cannot measure social inflation.

The PTF modeling framework enables you to mitigate model specification risk and extract maximum information from the data.

Enough with this quackery.

Get your team using PTF and put the odds back in your favour!

PLATFORMIFICATION

As a former CIO, Tim Hardcastle understands all the arguments as to why legacy systems can’t be changed.

But as CEO of no-code insurance platform INSTANDA, he also knows those excuses are wearing thin INSTANDA’s co-founder and CEO Tim Hardcastle has a straightforward approach to transformation: he believes every insurer in the world can operate and behave like a Lemonade – the well-regarded startup that offers insurance driven by social good.

That’s because the technology and processes that go with Lemonade’s transformative digital model are ready and raring to go. But many insurers are hampered by their reliance on IT systems that belong to the history books, says Hardcastle… and it’s time for them to reassess their organisational culture and embrace new technology.

Infact, by leveraging the INSTANDA platform, Hardcastle, who was previously CIO at Hiscox, promises insurers will soon be able to go far beyond what Lemonade is offering. The company’s recent pairing with artificial intelligence (AI) firm Cytora, for example, will help underwriters price risk more accurately, while INSTANDA is also working on a hush-hush project focussed on better technology integration.

Cloud-based INSTANDA is among a new wave of software providers that are shaking up the insurance world. But its innovative customer engagement platform is based on ‘no- code’ technology – an industry first.

It provides insurers, brokers and managing general agents (MGAs) with a software tool that can easily be customised by insurance providers, allowing them to move swiftly from product concept to binding online in a matter of weeks. There’s nothing that looks remotely like an off-the-shelf, one-size-fits-all model, says the company,

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boasting: ‘No templates. No limitations.’

It sounds an exciting proposition, and investors clearly agree. INSTANDA recently completed a $19.5million (£15million) Series A fundraising round, led by Assembly Capital Partners. This investment will support the firm’s international expansion in the US, Europe, Asia and Latin America as it looks to add to existing clients that include giants of the industry such as AXA, Hiscox, Aviva and Zurich.

It also recently partnered with technology and consulting company Softelligence – its first link-up in Europe – as it expands its mission to digitally transform the insurance industry and expland across the continent. In May 2020, Steven Haasz, who has 30 years’ experience with Prudential, Chubb and AXA, was appointed as Partnerships and European Accounts Director to lead the charge.

Companies can use our platform to embrace Lemonade-like behaviour… to do the things that consumers are asking [them] to do better THE INSURTECH MAGAZINE (TIM): Let’s take COVID-19 off the table for a moment: what’s the biggest issue facing the insurance industry as a whole?

TIM HARDCASTLE (TH): Let’s step back even further than COVID-19 and ask ourselves the more fundamental question: what’s the purpose of insurance? In principle, insurance, which has been operating for hundreds of years, has been doing a really good job of what it’s intended to do, which is to protect people, pool risk and ensure they don’t have to pay very much for this protection.

In that sense, at the macro level, I think insurance will continue to work really well in terms of what it’s there to do. But there

are things it clearly could be doing much better. One common complaint is that insurers, on average, take too long to pay out – some companies spend far too long manually processing claims. Sometimes, it’s also not that easy to buy insurance – it’s too complex and there are too many questions.

Or the cover that’s available doesn’t suit everyone’s needs. I may be a gig economy worker, or a business with particularly complex needs, and I don’t feel as though the cover I’m getting suits me.

These problems, which are a complex mixture of perception and reality, aren’t necessarily new, but there is too much friction in the process and there are significant improvements that the industry, as a whole, could make. Technology will unlock these improvements.

TIM: Earlier this year, INSTANDA announced a Series A fundraising round.

Congratulations on that! What does this extra capital help you to focus on?

TH: It’s given us another level of credibility and, more importantly for me as the CEO, ammunition to accelerate and further scale what we’re doing. When we’ve finished building it out, we’ll have one of the world’s most advanced digital platforms.

This injection of capital has allowed us to put in place the cogs we need to underpin our growth and develop the platform’s capability. We’ll be able to offer different use cases that will help insurers to solve even more of their pain points, giving them a strategic advantage in the market that they didn’t previously have.

There’s the platform extension, but we’re also investing far more in our partnership network. We’re rapidly onboarding new partners and building our internal team at the same time, so that we can have more conversations and get our solution in front of more people.

We recently brought on a new EVP in the US, Greg Murphy, and his comment to me was: ‘You guys are far too humble.

You’ve got this amazing platform and yet very few people know about it’.

He believes there are thousands of companies across the US that we www.fintech.finance

could talk to that would get tremendous value from using our platform. So we will talk to them!

TIM: It must be in an insurer’s best interests to actively enable the client so that they don’t ever have to make a claim. Does that resonate with you?

TH: I think that’s true generally – in terms of the way people behave, the way they operate machinery, the way they drive their cars, the way they look after their pets, and the way that we can build packages of support, enablement, and advice so that those risks are significantly reduced. We’re working with a client in South Africa that is currently building out a pet ecosystem, which is a much broader way of looking at how to provide risk coverage.

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Issue 4 | TheInsurtechMagazine

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PLATFORMIFICATION It’s enabling owners to get much more engaged and involved in preventative measures. So, you’re absolutely right, you can affect behaviour, or actions, and that will start to reduce risk. But there are still going to be acts of god, and other random things that will happen, where insurance will play a very important role in protecting and providing that safety net.

I think there will be a trend for insurers to work more closely with the customer, to influence their behaviour and reduce the risk of a claim. It will help, but there will still be claims that need dealing with in a more frictionless fashion. If you look at Lemonade, for example, which has the philosophy that ‘we’ll look at your claim, and aim to settle it within three seconds’,

Cloud vision: There are psychological barriers as much as technical ones

it’s redefining claim management and removing the friction so that customers feel they’re getting what they need at that point in time.

Lemonade is highlighting how every insurer in the world could operate and behave, because the technology and the processes that go with that are actually available. They’re ready to go. That’s one of the things we promote when we’re talking to our clients and prospects. INSTANDA enables you to behave like Lemonade.

TIM: Lemonade, of course, is a lot younger than most insurers and so doesn’t have a legacy problem. Do you think legacy technology and the associated issues, such as organisational culture, are holding the larger insurers back?

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TH: At INSTANDA, we’re saying you don’t have that excuse any more! Companies can use our platform to embrace Lemonade-like behaviour. You may claim to be held back by technology, but there are solutions like ours out there that enable you to do the things consumers are asking you to do, better.

I used to be a CIO, so I know this argument only too well.

You still have the technology teams who’ll say ‘well, yeah, but I’m managing things that have been built in the last 10, 20, or even 30, years.

These systems are very, very old, and they’re very, very difficult to change, because they contain a lot of our historical information, our customer data. They are

We now have an abundance of data at our fingertips to feed the technology, which helps to fuel collaboration that drives new solutions our system of record and we can’t just move them aside’. Now that may be true, however, what you can do is start talking to those older systems with new, modern ones.

Integration usually becomes the next stumbling block, so we’re in the process of setting the industry a challenge on integration, because we know from our experience that there are multiple ways to solve that particular challenge. We’ll be revealing more about this project shortly.

TIM: How do you then avoid your own INSTANDA platform being the legacy technology in 20 years’ time? How do you make sure that it will continue to be part of an evolving ecosystem?

TH: I’ve been in the technology space for quite a while and I’ve seen a lot of changes.

The good news is that we now have an abundance of data at our fingertips to feed the technology, which helps to fuel collaboration that drives new solutions.

When we were designing INSTANDA, we took the view that we need to be working in collaboration, in cooperation, with multiple other applications and data sources. For example, we recently integrated with Cytora, a great company that specialises in risk algorithms and data source capture.

These guys take a bunch of datasets, run algorithms on it and give you a risk score.

If you were to buy your house insurance policy, for example, you could use Cytora to do all the analysis on flood, subsidence and all other risks.

Old-world, monolithic systems need structured data, but new-world platforms like INSTANDA should always be able to work in combination with others to harvest multiple open data sources and provide the right insight. That’s the key difference.

TIM: Finally, looking at your expanding customer base, there are a lot of very large companies in there. Have you seen a lot of neo-insurers start to come your way now, too?

TH: We’re very fortunate in that we’re seen as one of the companies that progressive insurers of all shapes and sizes should make the effort to go and talk to.

There’s no shortage of ideas in the industry; there’s no shortage of ambition and enthusiasm for doing things differently and that’s a positive sign. But there’s still some reticence, at board level in many companies, of course. There’s this psychology about being prepared to commit significant parts of a business to a modern platform. It’s therefore important to have a sensible conversation about how we could add value to a business.

We’ve got to be able to stand in front of our prospects and our clients and be confident about the strength and flexibility of our proposition.

I feel that we can now do that with any insurer in the world, which is very exciting for us, and very exciting for the industry. www.fintech.finance

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valyoues It’s all about customer experience.

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G+D Mobile Security is a part of the G+D Group with more than 11,000 employees worldwide. Our 5,300 experts in over 40 sales and partner offices all over the world are glad to advise and support you with years of experience and comprehensive solutions that let you meet the challenges of a connected financial industry and capitalize on its opportunities.

For more information, please contact mobilesecurity@gi-de.com Follow us on: Social icon

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PLATFORMIFICATION Cracked it: ActiveQuote emerged as the first PCW in its field, but learned you can’t stand still

5

Principles of creative disruption

As the pandemic forces insurers to reasses processes and technology, we ask insurtech pioneer Dr Richard Theo, founder of the first health insurance PCW, ActiveQuote, and Rod Jones, its Head of Partnerships & Marketing, for their prescription for success When was the last time you compared health insurance products with pamphlets? Can you even remember spreading out those glossy leaflets, trying to decipher the different services and offers? If you prefer to compare online, then you have one man to thank: Dr Richard Theo.

Back in 2009, Theo founded ActiveQuote, the first online health insurance price comparison website (PCW). Today, it might seem obvious,

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but back then it was groundbreaking.

And the story of how it emerged is a classic tale of entrepreneurship: humble beginnings, gritty determination and infectious innovation.

Headquartered in Cardiff, Wales, ActiveQuote is an independent broker of health and protection insurance products with a market-leading health insurance comparison website that now allows customers to tailor-make policies.

We spoke to Theo and ActiveQuote’s head of partnerships and marketing, Rod

Jones, to learn from the company’s experience as an insurtech disruptor.

Here are their five fundamentals for creating a stellar solution.

1

Create something that solves a problem

Whatever line of innovation you’re in, there’s a tip that comes in handy, time and time again: sell the problem you solve, not the product.

Think of your most-used mobile app (Google Maps, WhatsApp, Tinder perhaps) www.fintech.finance

GoCompare. Wales is a hotspot for and, odds are, it transformed something ActiveQuote is keen to stay on top of. insurtech innovation, hosting some of the that you found to be boring, awkward “A key challenge to address with any UK’s giants. Being in the neighbourhood or time-consuming into a much kind of online quote or application has meant that ActiveQuote was able better experience. journey is customer drop-off,” says Jones. to easily buddy-up with some of the For ActiveQuote, the idea was sparked “Traditional, form-based application biggest names and take advantage of by an irritating problem. There was pages are fine for desktops. However, the latest innovations early on. nothing in health insurance that with the increase in mobile usage, a “Because of the proximity, I was probably mobile-specific journey was imperative, compared to what consumers were able very tuned in to the success and ability of to do with car insurance. especially with complex products such price comparison websites,” adds Theo.

“Deep frustration can become an as health insurance.” entrepreneur’s inspiration,” says Theo.

So, ActiveQuote developed its own “The online world had emerged and yet, conversational user interface (CUI) to Understand your when it came to buying health insurance, customers’ buying process address the issue. there was nothing really online that “The uplift in customers completing the When Jim Morrison sang ‘people are helped you at all. There was no comparison strange’, he wasn’t joking! Many an journey was huge,” says Jones. “And, when that exposed all the detail of the it was evolved further in partnership with economist has bashed their head against differences between products.”

MoneySuperMarket, we discovered that, a keyboard over how totally irrational Theo began coding, setting up in even adding in additional questions, the and illogical we are. But firms that take a small space behind a drop-off concern was mitigated.” the time to really get to know Deep physiotherapist’s office, finding Over the years, ActiveQuote has added their customers and untangle frustration some of our behavioural ways to address that issue. brokerage services and a range of can become an “I seized on the idea that additional products – including the ability tendencies have an advantage. entrepreneur’s there was no decent for customers to tailor-make policies that Theo elaborates: “Although comparison of health insurance inspiration suit them. Whether it’s a new partnership we had the vision of building products and set about or an in-person chat, it’s all about a purely online experience Richard innovating and doing the consistent, incremental improvements. and we developed a fantastic Theo technical work to try to create a comparison engine, the price comparison for health insurance truth is nobody would fill it in and buy it See the opportunities within that would work for people.” online because they still had too many challenging environments Keeping in mind the problem you’re questions. They needed advice around “After any crisis, whether it’s the financial trying to solve is key to avoid wasting work their personal health conditions and crisis of 2008 or the coronavirus crisis in or creating something gimmicky, he says. history. We realised that we weren't 2020 – although it can feel terrible when “There is sometimes a danger of going to do enough business if we relied you’re in the thick of it – there are lots of innovating for the sake of innovating and only on online sales. So we businesses that come to life as There is losing sight of what the customer actually had to quickly pivot and turn a result of the chvange in the sometimes wants,” adds Jones. into a traditional broker that economy,” says Theo. “It’s like a danger of follows every enquiry with a a phoenix from the flames or innovating for the those flowers that thrive after phone call.”

Partner-up wisely sake of innovating a forest burns down”.

Taking note of what and be friendly and losing sight of ActiveQuote’s customers So, what opportunities, in with your neighbours what the customer his view, might be emerging wanted and needed meant Firms who choose their partnerships that Theo was able to at the moment? strategically become more than actually wants transform weaknesses into “One thing that’s happened the sum of their parts by offering Rod Jones strengths. ActiveQuote even as a result of coronavirus is customers competitive products and used this behavioural quirk to create that there’s never been a better time for better user journeys. additional relevant products. people to embrace advice via video chat For Jones, these relationships are “In many ways, the follow-up calls and video calls. Before this, there were crucial. And, according to him, for a turned into the USP for the company,” he things for which people still demanded partnership to be successful, both parties says. “There were a number of other face-to-face interaction. That’s changing.” need to understand each other’s weak products that we later moved into, which Virtual appointments could literally points, as well as their strengths. required that degree of additional advice.” transform the face of health.

“Working in partnership with insurers “Eighteen months ago, virtual GPs is key. If we can understand their were struggling to take off,” points challenges and concerns, we can then Don’t stop improving out Jones. “Today, most customers work collaboratively to develop a Ten years from now, no insurtech would want a virtual GP.” customer-to-insurer solution,” says Jones. wants to be described as ‘very 2020s’.

And there, he believes, disruptive Over the years, ActiveQuote has teamed Keeping the customer journey fresh is insurtech has another new role to play: up with some impressive industry leaders, just as important as maintaining the “We can help to educate and to reassure.” including MoneySuperMarket and quality of the product. It’s something that

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PLATFORMIFICATION

Learning from the super apps Fred Pi in Hong Kong on post-COVID lessons for insurers in the APAC region For years, insurers grabbed opportunities to benefit from healthy economies and a rising middle class in the Asia-Pacific (APAC) region.

But now that growth (pandemic aside) is slowing, how should they move forward?

COVID-19 has had a significant impact on business, particularly the suspension of face-to-face meetings and restrictions on crossborder travel. Hong Kong’s unique position means it has been hurt more than most. Insurers there have seen new premiums for policies issued to mainland visitors from China fall 57.7 per cent between Q1 2019 and Q1 2020. Chinese visitors mainly buy critical illness or whole life coverage in Hong Kong and accounted for a quarter of all new premiums in the same period last year.

But the pandemic could also be a chance for traditional insurers to climb aboard fast, digital, third-party platforms and reach the end-customers they missed before. Or they could leverage their existing customer bases and networks to build their own platforms for hosting third-party partners.

Platformification (which in Asia often translates as the super app) is not just a matter of numerous plug-in functions that might seem complementary to each other.

Nor is it simply about acquiring a stake in a digital platform under the badge of a ‘strategic investment’. Rather, an organic platform play should be based on solid customer data analysis, which points to how transactions should flow from one segment to another, be it on-demand delivery to insurance, or property protection to SME loans.

EY’s 2020 Asia-Pacific Insurance Outlook shows that 73 per cent of consumers there believe they should be able to accomplish any financial task on a mobile device. www.fintech.finance

That’s particularly true of mainland China, Thailand and Australia, where life insurance consumers prefer digital channels to agents – although that’s notably not the case in Singapore and Malaysia.

Super app v platformification Platformification became a feature of western markets a few years ago, primarily as a way for banks to connect with fintechs. Asia’s super apps don’t necessarily connect banks and fintechs, but European audiences will be familiar with Tencent’s WeSure insurance on WeChat Pay or Grab’s and Gojek’s insurance offerings, which have grown out of their ride-hailing platforms.

Super apps go way beyond a platform play, especially in areas of largely unbanked or underbanked populations that lack access to a bank account and financial services.

In theory, a full-package financial platform is a natural direction to go in, whether you are an ecommerce giant (Alibaba) or an insurtech (ZhongAn), as long as there are a significant number of customers and reliable transaction data. But this should also work for traditional insurers that see the potential and seize the chance.

Ryan Cheong, MD of digital for business at OCBC Bank’s insurance arm Great Eastern, told Insurance Asia News recently: “The growth of the internet economy

An organic platform play should be based on solid customer data analysis, which points to how transactions should flow from one segment to another

opens up new [insurance needs]. Rapid urbanisation [combined with] a young population and workforce, translates to a growing middle-income class with discretionary income for savings and protection needs.” That might explain Great Eastern recently taking a 22 per cent stake in Malaysian fintech Boost, a subsidiary of telco Axiata in the Association of Southeast Asian Nations, which offers an excellent platform for Great Eastern to leverage Axiata’s network and digital capabilities to reach underinsured customers.

While not the only way to improve revenue, it’s common sense for insurers to invest more in digitising their model.

China’s ZhongAn, the country’s first internet insurance company, has been focussing on upgrading the insurance value chain by leveraging tech. Notwithstanding the pandemic that has so badly affected incumbent insurers, ZhongAn issued a profit alert in June, announcing that net profit for the year ended June 30 was expected to have increased by 100 per cent compared with the corresponding period last year. Its US$600million fundraise in July was the largest debut US dollar bond offering by an Asian corporate so far in 2020 and it ranks number one in global insurtech debt financing. The insurer’s 95 per cent claim settlement automation rate, with 85 per cent of requests handled by robots, could be a factor in its performance.

ZhongAn launched its virtual life insurance business, ZA Life, as a joint venture with Fubon Life Insurance in Hong Kong two months ago. Last year, it partnered with Grab as part of the latter’s ambition to form a super financial services app. So, Asia-Pacific could still be the Promised Land for insurers if they embrace platformification. Given the pandemic's impact on business-as-usual, now is an opportune time.

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CUSTOMER COMMUNICATION

RU there?

Texting has been around ever since we learned to use our ‘phone thumb’. Now that it’s about to make a giant leap in sophistication, it’s time insurers got the message, says Zipwhip’s Vice President of Enterprise Sales Brendan Moore Increasing the number of touch points and frequency of interactions with customers is becoming a key means of differentiation for insurance companies, as well as a way of reducing risk and improving the bottom line: the more advice and alerts an insurer can give, the less likely claim incidents will occur.

And yet, on the whole, policyholders only ever hear from their insurer once or twice a year: at renewal or if they’re unlucky enough to have to claim. That goes for a staggering 90 per cent of home and motor insurance customers in the UK. At the same time, the fallout in the industry from the COVID-19 pandemic – described by Evan Greenberg, CEO of insurance giant Chubb, as potentially ‘the largest event in insurance history’ due to its impact on both assets and liabilities – is challenging both insurers and agents to find more efficient ways of dealing with policyholders as the workload soars. That will call for new solutions. So, how about texting?

It’s not exactly new but many organisations, particularly in the US it seems, have been a bit slow to catch on.

Seattle-based Zipwhip pioneered two-way business texting in 2014, when it established connections between wireless carriers and landline operators that allowed business phones to send and receive texts. Before Zipwhip, it was impossible to text an existing landline, VoIP or freephone (toll-free) number.

And yet, according to its 2020 State of Texting Report, 32 per cent of businesses still don’t use any form of texting to reach customers, despite it being the customers’

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preferred method of communication.

In another recent Zipwhip survey, 67 per cent of consumers would text their insurer if given the option to do so.

Texts get the job done when other mediums fail – consumers typically ignore calls from unknown business numbers and emails can get swamped in busy inboxes. But a text gets a response in less than 30 minutes, says Zipwhip, partly due to its ease of use and partly to its association with communication between friends and family.

The US telecommunications industry association, the CTIA, says six billion SMS messages were sent each day in 2019 – and that’s increased since the COVID-19 outbreak, with major US wireless providers seeing a 25 per cent uplift in text traffic. Zipwhip’s own research discovered that 56 per cent of people had been using their mobile phones more since the COVID-19 outbreak, and 62 per cent said they were responding to texts more quickly.

“If underwriters, agents and claim representatives are only leveraging email and phone calls, they can expect to see big results by using text,” says Brendan Moore, Zipwhip’s vice president of enterprise sales. “The consumer is familiar with how to use text and, because a firm can use an existing phone number, it’s a really elegant solution.

“The ability to text-enable an existing phone number isn’t typical of all texting platforms. That’s a stand-out feature of Zipwhip and it’s an important differentiator. Instead of using short code or a separate, text-enabled line, the ability to text or call the same number has numerous benefits. Most importantly, it

allows customers to initiate a text conversation with their agent or adjuster on the same number that they call.

“When we turn the system on for the first time, there are always text messages waiting for them in our software. Why? It's allowed business landlines to receive texts and people have been trying to get hold of them that way – they just expect it. Without Zipwhip, those texts fall into the ether.”

And there are not just plain texts between policyholders and insurers to consider. Customers can receive and return documents or photo evidence to support a claim, for example.

“Anything that mobile operators allow you to send via your phone, you can send via our software,” says Moore. “It works easily and it’s not an app that someone has to download – text is a feature on every mobile phone, straight out of the box. It’s a powerful tool for any use cases that require human-to-human interaction, of which there are a lot in insurance, specifically with claims, sales and distribution.”

Zipwhip’s system allows customers to text an insurer or agent’s landline number, or agents can flag up the opportunity to send a text to their smartphone when a call goes unanswered. Its solutions can be custom-built to integrate with an agent’s existing customer relationship management systems, such as those offered by Guidewire, Salesforce and SugarCRM, accessed via a Zipwhip application programming interface (API) or as a software product.

Last year, the company became the first to launch a Ready for Guidewire

www.fintech.finance

Keep it simple: SMS and, in future, RCS is a readymade way to improve CX

When we turn the system on for the first time, there are always text messages waiting for them in our software.

Why? Because people have been trying to get hold of them that way.

They just expect it Accelerator for two-way business texting, which now supports Guidewire's ClaimCenter 8 and 9 – a platform favoured by property and casualty insurers.

Such integrations allow insurance staff to auto-sync contacts and archive text conversations. That could be texts between additional claimants or insurance staff handling a claim, so that multiple staff can collaborate on a single claim. Triggers can be built into claims workflows to send automated texts. In essence, the system is built to allow insurers to get more done.

Zipwhip says adjusters who use its system can expect to settle claims 20 per

www.fintech.finance

cent faster than with alternative channels, and see a reduced number of voicemails.

Moore adds that improved efficiency of two-way texts boosts both customer ratings scores and internal performance targets.

“Many insurance companies gauge staff interaction with customers by seeing how quickly contact is made. With texting that contact is made immediately,” he explains.

“It’s a great story, it makes sense and it’s one of those things that C-suite executives understand because they use mobile every day. It’s not some new technology that’s behind a curtain that they have to figure out.”

Now that text looks set to make an evolutionary leap, it’s a good time for insurers to start incorporating it into their communication channels, says Moore.

A new generation of business texting is emerging with rich communications services (RCS), a universal standard that’s been on the blocks for years. RCS will allow businesses and consumers to send dynamic content, high-resolution pictures and video, process payments and more, all within a phone’s native texting app.

Having laid down the proprietary network of direct connections with more than 30 wireless carriers such as AT&T, Verizon, T-Mobile and Sprint, Zipwhip is

poised to facilitate the adoption of RCS between businesses and consumers at a time when there is heightened awareness around business chat services.

“One of our differentiators is that we have our own texting infrastructure,” Moore says. “Below our software platform we have all the plumbing needed to send text messages between mobile phones and landlines and, because we connect directly to Tier 1 and Tier 2 wireless carriers, we can ensure our enterprise customers the security, capacity and reliability they’re looking for.

Zipwhip’s enterprise-grade security includes data encryption in transit, as well as carrier-integrated spam and phishing monitoring. It has SOC 2 Type 2 compliance for security, the industry standard for software-as-a-service providers. The company already directly supplies more than 10,000 clients with business texting services, and around 35,000 businesses tap into its software solutions.

“Many industry players want big results without a major investment,” says Moore. “Keeping it simple with technology you can really leverage is vital. That technology is text.”

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COMMENTARY: COVID-19

Insurers need to innovate their way out of this crisis, writes Fintech Global, and startups are ready to meet the challenge. Pausing projects now won’t help anyone While the coronavirus is a huge challenge for all businesses, it could also prove to be an opportunity for insurtech startups.

The insurance industry has famously been very slow to embrace new

technologies. However, the coronavirus crisis is forcing them to take a long, hard look at their own limitations, their legacy systems and infrastructure. Some believe it might be the nudge insurers need to look for new solutions – and for startups to provide them.

Of course, that does not mean that the insurance industry has been void of innovation. Sector giants like Generali and AXA have launched several initiatives over the years to work more closely with technology startups in the sector.

Nevertheless, the current coronavirus

crisis could encourage more of them to seek out new solutions.

“The pandemic has already been a huge wake-up call for many large companies that have been slow to modernise,” observes Stephen Brittain, co-founder of Insurtech Gateway, the insurtech incubator and one of the European sector’s most active investors.

It’s easy to see why insurers could be motivated to get out of their comfort zones. With countries across the world forced into lockdown to contain the contagion, shops have closed, travel

When the wave is high... just ride it

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www.fintech.finance

agents and airlines have gone into administration, other businesses have been forced to lay off massive numbers of employees or promote remote working, schools and universities have sent their students home and economies in general have been severely disrupted. Affected individuals and businesses have overwhelmingly turned to their insurers for help. The Association of British Insurers expects that travel insurers alone will pay out a record £275million in claims this year because of disruption caused by COVID-19.

While many insurers are arguing that their policies do not cover the outbreak of a global pandemic, lawmakers everywhere are urging them to consider the losses to businesses and communities and pay out.

All of this combined means that insurers may be more prone to change: the COVID-19 outbreak might have created a prime moment for innovative insurtech startups to seize upon.

“When everything changes rapidly, the lean and agile startups really start to shine. Passionate founders are pushing their fledgling companies to overcome the odds and will come out of the other side stronger,” believes Brittain.

He argues that a ‘startup community with incredible access to technology’ is out there and ‘looking for problems to solve’.

“This is going to be a huge accelerant for insurtech,” he predicts.

Copyright © 2020 FinTech Global

A startup environment Since 2015, the European insurtech community has raised more than $4.2billion in more than 300 transactions, according to FinTech Global’s data. In the US, insurtech companies attracted more than $7.8billion of investment across 418 transactions between 2015 and 2019.

During that period, the average deal size increased from $13.7million to $38.2million.

There was no shortage of confidence in the sector before the pandemic and, since startups are, by definition, smaller businesses, they can quickly adapt to new circumstances and help solve insurers’ problems – especially now.

“Where insurance companies need to adapt, insurtechs are well-positioned to allow insurance carriers to do it rapidly,” Samuel Falmagne, CEO and co-founder of insurtech pricing company Akur8 says.

As an example, Akur8 has been able to develop a fully virtual model for running www.fintech.finance

pilots and onboarding clients to the platform, which allows its prospects and clients to maintain their plans.

The problem lies not in the ability or availability of startups to help push the reset button, but rather in insurers’ willingness to commit to projects now.

Insurers could be tempted to put them on hold or even cancel plans.

“This is a major risk for insurtechs as many of them will not survive if the industry is pausing all the projects,” says Falmagne. “Insurance companies have the chance to have a highly dynamic insurtech ecosystem that can support them in facing the crisis, but many insurtechs are not yet as financially robust as their clients. As insurtechs we also need their support.”

Startups often don’t have long cash horizons and may only be able to keep the lights on for another few months. With a global pandemic wreaking havoc on the global economy, they’ve found themselves in a particularly tenuous situation. “They’re having to make some pretty serious decisions about what they do, and how they survive,” says Brittain.

Last week was a week of panic. Next week I’m going to get business plans in my inbox. I feel I’m watching a powerful force going through a period of change Some ventures, particularly the ones operating in the travel and gig economy insurance segments, have seen their revenue forecasts plummet by as much as 95 per cent in the past two weeks alone.

There are some positives to being small, however. To retain staff and keep them motivated, startups have the opportunity to give staff equity instead of salaries during the months when they cannot afford to pay them, which is seldom an option for more established players.

“I have never heard a corporate talk like this,” Brittain says, adding that startup staff are more likely to take this option as they believe in the business. “And I think that’s a wonderful thing.”

Yet, if these companies can survive the

crisis, there may be several opportunities out there for them. For instance, Brittain believes insurtech companies could benefit from looking beyond just how risky something is and offer solutions to prevent claim events instead of simply ‘paying out when the thing goes wrong’.

“I’m super excited about this because the timing couldn’t be better, with the insights and data improving our ability to see where things are happening so that we can prevent them,” he says.

Earlier this month, the agency brokerage Rosenblatt Securities looked into how different segments of the fintech industry would be affected by the coronavirus. It noted that many startups might soon find it more difficult to raise money on decent terms, go public or achieve high valuations.

Yet, the researchers noted that the insurtech industry might weather the storm better than other sectors, not least because the crisis might motivate more people to buy additional cover. Moreover, risks such as cybersecurity, climate change and social disruption have not seen investment decline and, Rosenblatt Securities predicts, they will continue to rise.

Brittain also remains optimistic for the insurtech segment, even if the going is rough right now.

“Learning some agility, working from home, re-evaluating themselves when they go back to work. I mean, it can only be good for the development of the sector,” he says.

“Last week was a week of panic and trying to get stability,” Brittain continues.

His team spent the period trying to figure out how to secure funding and support founders. “Panic after panic. And then this week I’ve had 150 WhatsApp messages with jokes in them. Next week I’m going to get business plans in my inbox.

“That’s the nature of where we are now.

It’s just things are moving so much faster.

“How do I feel? Optimistic. I feel I’m just watching a very powerful force going through a period of change.”

Virtual InsurTech Forum

If you want to find out more about the impact COVID-19 is having on the insurtech industry, join the FinTech Global Virtual InsurTech Forum on 21 & 22 July. Register for FREE at: www.virtualinsurtechforum.com

Issue 4 | TheInsurtechMagazine

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AI & AUTOMATION

The good, the bad and the ugly SmartStream’s Chief Innovation Officer Andreas Burner oversees the company’s research into AI that can identify bad and missing data for reconciliation purposes.

In insurance, dirty data isn’t just a financial burden but, increasingly, an ethical one In June, the US-based Center for Economic Justice singled out the insurance sector as being particularly unimaginative and slow-moving in its approach to data bias.

“In an era of big data analytics and insurers’ rapidly growing use of third-party data and complex algorithms, the potential for algorithmic bias and proxy discrimination has grown dramatically,” it said.

A study last October in the journal Science claimed an algorithm used by hospitals and insurers in the US miscalculated the care needs of sicker black patients in particular – partly because these patients tend to avoid having to go to hospital to pay for services, due to not having adequate insurance cover.

Separately, the Center for Economic Justice statement quotes a recent paper from scholars at the California Law Review, which illustrates why campaigners are concerned about AI use cases in insurance.

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“Data mining can inherit the prejudices of prior decision-makers or reflect the widespread biases that persist in society at large,” they said. “An algorithm is only as good as the data it works with.”

As someone dedicated to applying AI to data in 70 of the world’s top 100 banks and many other key institutions, including insurers, Andreas Burner is well aware of that fact.

Part of his job as SmartStream’s chief innovation officer is to oversee the company’s Vienna-based Innovation Lab, where computer scientists, mathematicians and banking experts are collaborating to find use cases for AI in the financial industry. A crucial part of that task is identifying and rectifying the problems that ‘bad’ data collection and entry can create further down the line. As a company, SmartStream intends to invest 20 per cent of its yearly revenue into research and development in the lab, which opened in 2018 to focus on potential uses for AI, machine learning and blockchain.

“If the data is biased, the machine learns from that,” Burner says. “We’ve seen

several examples where applications were automatically filtered, and it has bad bias in there. Recently, there have been many papers on how to identify that bias, because it’s so important to understand and try to remove it from the data.”

The papers that Burner references are the first pioneering efforts to shrug off inherited discrimination, ensuring society’s inequalities don’t piggyback into the age of AI. But, as the Center for Economic Justice points out, progress is simply too slow – and the insurance industry is ill-equipped to act on the recommendations. “AI and machine learning technology is really complicated. You need experts to master it – and it takes years,” Burner points out.

Several of the world’s leading insurers have already implemented AI to help underwrite, price and risk-assess their policies. AXA, Aviva and Lloyd’s of London have invested heavily in the technology in recent years, and disruptors like Cuvva and Lemonade Insurance have based their entire business models around it, with chatbots at the front end and AI underwriters in the back office. www.fintech.finance

This innovation should mean more competitive prices for consumers, yet lingering over this is the concern that the cost reductions associated with the rise of AI may not be equally distributed throughout society. As talk of AI regulation builds, it may fall to fintech specialists in data hygiene and processing to provide ways to dissect and nullify bias in the data AI is founded upon.

In his own sphere, Burner hints that SmartStream is building such a capability – albeit with individual financial institutions, addressing their specific data discrepancies.

“We are running proof of concepts in the innovation lab at the moment where we have huge amounts of data to help an institution that is having problems with the quality of its data,” says Burner.

“Either data is missing or brokers deliver bad quality data. We have implemented one of our machine learning libraries to retrieve that data from other systems and try to identify everything that is missing.

You cannot imagine how successful that is – we’ll be writing a white paper on it because it’s really a story to tell.”

It could be one that others can learn from in the wider context of AI use.

SmartStream’s lab-based approach has been compared to the workings of an F1 team, where specific, high-tech solutions are developed by global experts working at the cutting edge, which then filter back into the financial services industry. For SmartStream, every eureka moment in the Vienna lab has implications for the handling of data throughout the financial sector; every data hygiene breakthrough makes AI more thoughtful and more conscious of the world beyond the data that it devours.

And Vienna continues to deliver. Most recently, at last year’s Sibos event in London, the lab unveiled SmartStream Air (AI in Reconciliations), the result of 18 months’ rigorous work, using real bank data to ensure the efficacy of the solution. SmartStream’s new reconciliations software, Cloud-based and simple to onboard to, created a huge buzz. Banks

and insurers found the software delivered solutions to data inconsistencies, disputes and exceptions in minutes, rather than weeks. And, like other Cloud tech providers, SmartStream has found its solution particularly popular in the last few months.

“Now we are in this COVID-19 lockdown, it’s quite tough for organisations to purchase and install hardware and software, because people are just not on site,” says Burner.

“So we’ve seen an increase in Cloud technology recently. In these times, it’s actually the optimal solution for organisations that want to quickly and easily verify their data.”

SmartStream AIR proves that the work in Vienna can have profound industry-wide effects – helping all manner of financial institutions cope with their swollen reservoirs of data.

“Insurers also have lots of data within their organisations, in different databases or data lakes,” says Burner.

“So SmartStream Air is really a tool that can be used in any organisation that wants to perform data verification and identify problems, so that they are resolved quickly.”

AI in reconciliations is ultimately about back-office savings. Significant ones. Those complex, interweaving data trails once struggled over by manual data workers are child’s play to SmartStream AIR. Insurers are saving hundreds of hours and countless frayed nerves using SmartStream’s software, and the reconciliations AIR produces facilitate straight-through processing of datasets across insurers’ verticals. With better-shaped data, insurance firms can concentrate on their product lines and the processes upon which they rely.

“That pre-process, making the data better, has such a positive effect,” Burner

If the data is biased, the machine learns from that... it’s so important to understand and to try to remove that bias

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Bad data dilemma: The SmartStream lab is working to eradicate it

says, “because everything from then on is straight-through: it’s being processed automatically, with less manual touch points for users, and much more quality for managers. It’s really, really impressive.”

SmartStream AIR was created after countless conversations with SmartStream’s customers, which directed the Vienna lab towards automated reconciliations as a priority for financial institutions. But it can be used to reconcile not just financial digits. There are applications across many of an organisation’s departments.

“We also see that HR, for example, has need of such tools. And big organisations typically hold customer names and addresses in their CRM as well as other systems. Whenever you want to synchronise data quickly and easily, SmartStream Air is a perfect choice for that,” says Burner.

Given the recent calls for closer scrutiny of AI in insurance underwriting, SmartStream could perhaps help insurers identify ethical concerns as much as efficiency-saving ones – because there’s no doubt that AIR is a tool with big brain.

Burner jokes that it can solve 3.5 million arrays in a Sudoku puzzle.

“But, what’s more important is, if the person behind the Sudoku made errors, SmartStream Air can identify those.

It will be automatically reconciling the Sudoku while solving it and telling the creator where he or she made typos!

“That’s actually what reconciliation does. It identifies exceptions and disputes, in huge amounts of data.”

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AI & AUTOMATION

Diversifying now to insure tomorrow Swiss Risk & Care saw an opportunity to use wealthtech Nucoro to position the insurance and pensions broker for a digitally engaged future

Facing an ever-increasing threat from insurtech challengers, bigger insurers need to find ways to diversify and add value for their clients in order to stay ahead of the game. And one of the best ways of doing that is by extending their product range without disrupting their core business model.

So believes London-based fintech company Nucoro, which helped Swiss insurance and pension broker Swiss Risk & Care (SRC) to develop a supplementary wealth management platform for its 200,000-plus customers.

Launched last year under SRC’s Opsion brand, the service is a market-ready solution that enabled SRC to diversify through expansion into the Swiss retail investment market, while also providing a next-generation experience for its brokers and clients. In effect, SRC could add a new revenue stream without compromising the long-established expertise of its key business and brand – a win-win for all involved.

“We had been looking for a solution provider that could fit our digital ambition,” says Pascal Payot, managing www.fintech.finance

director for SRC’s two new business units, Opsion 3a and Opsion Vested Benefits.

“The solution needed to be flexible, highly user-friendly for both clients and brokers and manage the associated administrative burden effectively.”

The solution has full back-end automation powered by the Nucoro engine.

This, in turn, enables a fully-automated user journey, from onboarding to billing.

Retail clients receive a personalised user experience and gain access to different investment universes, including mutual funds, exchange-traded funds (ETFs) and index funds.

The modular structure of the platform means that each function – including automated compliance and reporting features – operates independently of the other, reducing friction. Nucoro also set up application programming interface (API) connections for trading orders, which fitted in with another of SRC’s aims.

“Minimising the need for increased headcount was also a big part of our criteria,”

The solution needed to be flexible and highly user-friendly for both clients and brokersand manage the associated administrative burden effectively

says Payot. “Nucoro was able to deliver the digital platform we were looking for.”

Back in 2017, Nucoro was developing a robo-investment product concept when it dawned on the team that what the wealth management industry really needed was a ‘new core’; a radical overhaul of both its technology and the relationship between technology providers and clients.

The company launched its artificial intelligence-powered wealth management Exo Investing a year later.

The fully-automated platform went on to win both Best Digital Wealth Manager Of The Year and Most Innovative Product Of The Year at the AltFi 2018 awards, and was named as a finalist in three other industry accolades.

Nucoro also made WealthTech 100’s and Disruption50’s indexes of most disruptive UK companies. In its 2020 list, WealthTech 100 praised Nucoro for enabling ‘any financial organisation to build the next generation of investment and savings propositions quicker and more effectively than ever before’.

It added: “The platform allows banks and wealth managers to scale their client bases without increasing overheads; reach the next generation of investors with seamless user experiences; improve client prospecting with intuitive onboarding processes, including automated know your customer (KYC) checks, and reduce human error and paperwork while staying compliant.”

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AI & AUTOMATION So, what does wealth management have to do with insurance?

Nucoro describes itself as working with a wide range of financial services businesses – including banks and insurance providers – who want to be more agile, efficient and able to rethink what’s possible in the future.

The company’s website boldly proclaims: “We believe in the power of technology to transform the way business is done and how clients are served.” And perhaps nowhere is such an ethos more needed than in the insurance industry, a sector particularly hard-hit by legacy problems – both in terms of technology and mindset.

The benefits of technological innovation for insurers, on the other hand, are well documented, with automation streamlining

checking why he had failed to respond.

When the policyholder phoned to discuss his policy they ‘didn’t know who I was’.

Adding bolt-on services, such as wealth management solutions or on-demand insurance for ‘micro-events’ such as borrowing a friend’s car, can not only help to diversify an insurer’s offerings, but also enable it to leverage the personal touch that has made building digital finance products so attractive to retail clients.

Customers: the big disruptors A recent study by Deloitte backs up the importance of engaging, and re-engaging, clients. A Demanding Future: The Four Trends That Define Insurance In 2020 observed that the biggest disruptive force

Extending the market: High net-worth individuals have access to seamless mobile and web apps

areas that are historically slow or admin-heavy, like KYC and onboarding.

This, in turn, can improve delivery of service and reduce the provider’s overheads.

But in addition to enhancing infrastructure, technology can also be used to supplement services – which is a great tool to attract new clients and promote customer stickiness in an industry often defined by little contact with customers.

In its The Future Challenges Of Insurance white paper, Nucoro describes the industry as featuring what it calls ‘long-term, low-touch relationships’. This can prove problematic when building up customer engagement, something increasingly important for financial services providers in the digital age. The white paper shares a real example of a customer with a life insurance policy, which he had held for 10 years. For six of those, the policyholder had no communication from the insurer, because the company had been mailing to the customer’s old address and not

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facing the industry was not technology, but customers themselves. It concluded that, in an age of immediacy where loyalty is no longer a given, the industry has to expand beyond its core offering to retain its customer base.

Insurers believe that nearly two-thirds (62 per cent) of consumers regard non-insurance products as the most important factors when choosing an insurer, Deloitte revealed.

Meanwhile, 57 per cent of providers think that access to friendly and knowledgeable staff for help is the most effective way of maintaining customer loyalty.

So, instead of forcing customers into an industry’s narrow definition of their needs, it is clear that digitally-capable insurers can benefit by coming up with new ways to utilise customer data to improve engagement and delivery of their services. Indeed, client and customer expectations were very much the reasons behind SRC’s launch of the Opsion wealth management solution.

“The logic behind Opsion is two-fold,” says

Richard Racine, managing director at SRC, which is a subsidiary of European insurer SIACI Saint-Honoré, and the leading pension broker in the French part of Switzerland.

“The first concerns the expectation of companies. They are looking for flexibility in the management of their occupational pension plans. Our customers have approached us several times in this regard,” he adds. “Secondly, the French-speaking Swiss market only offered one solution, which did not meet the needs of our customers. We therefore decided to launch an open architecture fund offering two schemes, differentiated by the degree of autonomy and choice available.”

The flexible solution enables companies to create bespoke occupational pension solutions within Opsion, while also benefitting from shared structural costs, cost-effective negotiated frees and the transfer of risks.

“They therefore have the freedom to choose their pension plans, their conversion rates and other technical parameters, the reinsurer and actuarial risk coverage, as well as the investment strategy,” adds Racine.

Digitally-engaged, high net-worth clients also benefit from an enhanced user experience, with seamless mobile and web apps, detailed portfolio management and visibility, including fees and payments for each client and automatic reconciliation of positions, with a direct link to an advisor, should they need one. A shorter, 10-minute onboarding frees up Opsion brokers to concentrate on added-value services, too.

The insurance industry has faced unprecedented disruption in recent years, which has only been heightened by the coronavirus pandemic – particularly in the property and casualty sector. But all is not lost. By bringing together insurance and products such as wealth management, insurers can re-energise their client base and increase their brands’ stickiness.

Meanwhile, companies can also improve and streamline their back-office operations by leveraging automation and structuring their business models to enhance human added value – just as SRC did with Opsion.

Becoming digital does not require changing the very essence of the insurance business model. But it can help make a company more agile and attractive to customers, which any insurer looking for future growth must embrace – to the benefit of everyone. www.fintech.finance

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