alt text US Treasury Cash Room

Washington, DC - The Federal Advisory Committee on Insurance met on May 10th, 2018, to discuss the state of technology in the modern insurance industry. Just like a couple of middle schoolers on a civics field trip, members of the insurEco team had front row seats for all the day’s presentations.

A very informative series of presentations were provided by leaders in insurance and the technology transforming it. The committee was headed by, Steven Seitz, deputy director of the FIO, and Dan Glaser, CEO of Marsh and McLennan.

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InsurTech is Happening: Are You Ready?

The first presentation, “InsurTech is Happening: Are You Ready?” started the afternoon, diving into the relevance of the InsurTech field. “The modern insurance industry is undergoing a great deal of change”, says Matthew Leonard   - Partner at Oliver Wyman. “It serves now to enable innovation by allowing individuals and companies to take greater risk by insuring against failure and loss.”

alt text The committee is poised to hear about insurTech

Insurance is big business; maintaining a $5.1-trillion global market with $2 trillion of that in the US alone. Processes are evolving more quickly than ever before, and new emerging technology is coming from a number of different fields.

Emerging fields highlighted in the presentation:

  • Computer Vision
  • AI
  • Sensors
  • Blockchain
  • Robotics
  • Drones
  • Genomics

All of these are directly influencing the modern insurance industry and beyond. This positions the insurance industry at a unique crossroads. Already, the value proposition of insurance is transforming into a closer-to-the-customer approach. Service-led techniques are being favored against the old balance sheets thanks to the unlocking of data assets industry-wide.

“47% of the US workforce is currently at risk for replacement, displacement, and disruption.”

alt text Matthew Leonard - InsurTech is Happening: Are you ready?

Experts agree that the pace and scale of these changes are unprecedented, ushering in an era with no roadmap to follow – perfect for innovation. The result is that in 2017, 54.8% of all FinTech funding was in the InsurTech space, with over 180 funding deals executed. 60% was for US-based companies, and of those, the distribution of the funding was as follows: 19% in propositions, 42% in distribution, and 39% in operations.

Matt continued the presentation on the following basic success factors:

  • Location
  • Talent
  • Funding
  • Infrastructure
  • Public Authority

In addition to basic structures these winning factors were also highlighted:

  • Globally leading expertise
  • Culture
  • Lighthouse visionaries

Hartford InsurTech Accelerator

Four presenters from the Hartford InsurTech Accelerator spoke next, demonstrating their region’s support and enthusiasm for InsurTech as a growing industry ripe with opportunity.

They discussed the current state of InsurTech from a regulatory to carrier relationship. Michelle Cote , from the Connecticut Center for Entrepreneurship & Innovation, was joined by Elizabeth Maerz , VP at Travelers, and Jill Fankle , Assistant VP at The Hartford.

alt text City of Hartford and Support for InsurTech

To successfully innovate in the InsurTech space, external factors must be considered and readily utilized. Changes in customer expectations will be the first indication that change is needed. Then, using emerging technology such as new data and analytics model, innovations like shifting the distribution model can occur.

The city of Hartford, they say, is aiming to be the next InsurTech capital. Already it is home to organizations like CTNext, InsurTech Hartford, and Startupbootcamp, whose inaugural season saw 10 qualifying applicants drawn from over 300 applicants. These 10 will carry on to a 14-week accelerator to shape, build, and sell a new InsurTech product.

alt text 10 Startups In First Hartford InsurTech Hub

Innovation often comes from accelerators that connect startups and insurance participants as solutions shift from front-end distribution to back-end enabling technology. The insurance industry is in turn embracing innovation by providing tactical solutions to short-term problems by fixing broken processes and relieving day-to-day pressures.

The strategic benefits of innovation also include providing long-term solutions by offering new business models that are less constrained by the day to day activities. This is led by startups, who offer speed and novel approaches, with new products and capabilities developed by an outside perspective, creating a new way of working.

alt text Regulatory insights given by the Connecticut Insurance Department

Insurance regulators strive for a healthy and competitive market, and they need to be part of the process by sitting at the table with innovators. Timothy Curry   from the Connecticut Insurance Department, went on to explain how innovation can reduce society’s insurance gaps by helping consumers make appropriate risk transfer decisions. It is necessary to mitigate risk by creating new ways to prevent loss. Regulation should be flexible, where possible, by reconciling, reexamining, and waiving requirements whenever appropriate.

“Regulators must regulate the market conduct of emerging technologies like big data, predictive modeling, and machine learning while holding firm on important items like financial strength, solvency, and compliance.”

The speakers from Hartford finished up with a discussion of the current applications of InsurTech, which are already impacting claims through channels like digital imaging and real-time claim funding. Insurance law, however, typically lags innovation. The challenge thus lies in modernizing regulation by helping the consumer have better access to make educated choices. This must be done in a fair process that explains how the technology will work with discrimination and anti-competitiveness laws.

InsurTech blurs the lines between insurance, point solutions, and risk transfer. This transformation is leading to a new influx of investment in old concepts enabled further by technology. The legal constructs are similar, but the customer experience is different.

Blockchain technology in the Insurance Industry and Potential Uses

After a break, the committee continued with a presentation by Susan Joseph  , the North American Representative for B3i. She gave an overview of the potential for usage of Blockchain technology, on everyone’s minds these days, in the insurance industry.

alt text Susan Joseph explains the basics of blockchain while avoiding crypto

Blockchain, Susan tells us, is useful for enterprise, and particularly for insurance and banking, because it is all about ledgers.

A blockchain is a distributed ledger, on which consensus is not achieved by centralization or trust. Simply put, blockchain is another way of producing, storing, managing, and sharing data as a distributed and secured record of transactions that requires a network.

Despite its usefulness, however, challenges related to scaling come from the wait-and-see attitude of the insurance industry, as well as the legislation and regulation surrounding it, which leads to legal uncertainty.

“The insurance industry should set the standard and needs to embrace this technology, while regulators need to not put up walls that stifle innovation.”

The technology itself requires industry-wide standardization, achieved through collaboration, user adoption, and social acceptance. Reduced cost and friction will come from codifying complex controls, which will create regulatory transparency and lead to a digital and paperless marketplace.

Developments in Auto Insurance and the Effect of Autonomous Vehicles

The final presentation was given by Michael Nelson  , Partner at Eversheds Sutherland. Titled “Developments in Auto Insurance and the Effect of Autonomous Vehicles,” it went into the state of the autonomous vehicle industry present and future, and further elaborated on what it means for society.

alt text Michael Nelson lays out a roadmap of the autonomous future

Autonomous vehicles are split up into five levels:

Level ETA Description
Level 1 (Available Now) Majority of automobiles today with little to no automation
Level 2 (Available Now) Two or more vehicle functions are automated
Level 3 (In Testing) Achieved when GPS-controlled driving is standard
Level 4 (3-5 Years) Computer operation with available manual control comprises
Level 5 (10-20 Years) Full automation with no human driver needed

A considerable number of emerging technologies are being used to drive this autonomous vehicle revolution. Among them are V2X communication, DSRC, 5G tech, solid-state LiDAR, and geo-ring/fencing. Hydrogen fuel cells are also seen as a potential fuel source for the fully autonomous vehicles of the future.

“The number of auto accidents will drop within a few years due to mass OEM committment to Level 2 vehicles.”

As for the current state of affairs, international adoption is actually standardizing faster than it is in the US. There are companies like Magna which are developing retrofit technology for Level 1 vehicles, and a great deal of emerging tech focuses on autonomous vehicle issues, such as risk analytics. This new automobile field means new entrants into the market and new insurance models are inevitable. Some of these are already here, like Lyft and Uber, and leasing models that include insurance.

The presentation is completed with a suggestion that we all take the time to educate ourselves on this rapidly advancing sector.

Good reads are suggested:
RethinkX: Self-Driving Electric Cars Will Dominate Roads by 2030
KPMG – The chaotic middle | The autonomous vehicle and disruption in automobile insurance.

FIO Business And Wrap Up

The meeting wraps up in the evening with minutes and updates given by Steven Seitz  , and a discussion of new business follows. In the first meeting between the EU and US International Association of Insurance Supervisors, on March 6th, an agreement with International Capital Standards was made and went into effect April 4th. Cyber security is framed as the next major hurdle for the InsurTech industry, and this is the primary of focus of the agreement.

FACI Members

  • Amy Bach, Executive Director, United Policyholders
  • David (Birny) Birnbaum, Executive Director, Center for Economic Justice
  • Laura Bishop, Executive Vice President and Chief Financial Officer, USAA
  • Kurt Bock, Chief Executive Officer, COUNTRY Financial
  • Elizabeth Brown, Associate Professor, College of Business, University of Wisconsin – La Crosse
  • Quincy Branch, President and Chief Executive Officer, Branch Benefits Consultants
  • John Franchini, Superintendent, New Mexico Office of the Superintendent of Insurance
  • Daniel S. Glaser, President & Chief Executive Officer, Marsh & McLennan Companies, Inc.
  • Mark Grier, Vice Chairman, Prudential Financial, Inc.
  • George Keiser, Representative, North Dakota House of Representatives
  • James (Jim) Kelleher, Executive Vice President & Chief Legal Officer, Liberty Mutual Insurance
  • Theodore (Ted) Mathas, Chairman, President & Chief Executive Officer, New York Life Insurance Company
  • Teresa Miller, Commissioner, Commonwealth of Pennsylvania Department of Insurance
  • Theodore (Ted) Nickel, Commissioner, Wisconsin Office of the Commissioner of Insurance
  • Al Redmer, Commissioner, State of Maryland Insurance Administration
  • Michael Riley, Commissioner, State of West Virginia Offices of the Insurance Commissioner
  • Marguerite Salazar, Commissioner, State of Colorado Division of Insurance
  • Christopher Swift, Chairman and Chief Executive Officer, The Hartford
  • Katherine (Katie) Wade, Commissioner, State of Connecticut Insurance Department
  • Maria T. Vullo, Superintendent, New York Department of Financial Services

Source : Treasury.gov

Presenters

Matthew Leonard
Michelle Cote
Elizabeth Maerz
Jill Fankle
Timothy Curry
Susan Joseph
Michael Nelson