Martha Notarus, Partner at XL-Innovate giving her views on insurance disruption. She said that the scale of the opportunity that why we all here. $2 trillion in premium and that's just in the US. The premium breaks into roughly equal thirds, property & casualty have about 600 billion in premiums, life & health each have about 700 billion.
The property and casualty are the areas that XL innovate are most invested in. Insurance is essential virtually to all commercial activity. $2.2 billion has been invested in insurance technology startups in the past 5 years. That $2.2 is on the top of about $20 billion over the same period that's been poured into insurance and reinsurance start ups by traditional insurance investors.
So, the goal with this invetsment is to reap the benefits of taking risks without spending the cost of traditional infrastructure and regulatory expenses. The good news for the disruptors is that the insurance industry faces serious challenges on the growth side. The contribution to global GDP has dropped from 3.2 to 2.7 percent in past ten years. What that means is that the overall economy is growing faster than insurance rising cost unlike most of the financial services. Which has seen a drop in distribution costs in recent years. Distribution costs in the industry are rising, regulatory costs & constraints are also rising particularly in the wake of 2008 prices.
The regulatory constraints mean that not only does that costs industry more money but it limits flexibility and agility. The average net promoter score is 48 on a scale of 100. One health insurance company has a net promoter score of -1. Possibly some room for improvement there as well in terms of new risks as a traditional industry insurance needs a help of understanding & identifying new risks.
1. High-value opportunities underwriting:
- New risks and products
- New data & redefining risks
- New analytics & technology
2. Distribution- Marketing & Costs;
- Online, Direct or brokage
- Lifting regulatory constraints
3. Operations- there are so many running business & claim management
- Efficiency to reduce costs
- Claim Technology
4. Capacity - what we need to find ways to use other people money & alternatives.
- Alternative capital sources
- Better investment Strategy
There are some predictions:
1. The value will be in the execution, not in the infrastructure.
2. Mobile will transform personal lines distribution.
3. Small & medium commercial distribution will be invented.
4. The biggest opportunity will be in addressing new risks and in accessing nonregulatory capital.
5. Property and casualty industry brokers will be paid as advisors, not by commission.
The essential elements of insurance technology investing are:
- Business models
- Risk addressed
- Distribution strategy
- Insurance network
- Exceptional team
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