Defining InsurTech Actuary

InsurTechs have been around for at least over 8 years now, about USD 20bn has been poured in by investors over close to 900 deals. Interestingly, in 40% of deals (re)insurer were amongst one of the contributors[i]. InsurTechs, across the globe, have added or are adding value to every part of the (re)insurance value chain. InsurTechs are for real and they are here to stay. It is high-time we actuaries start contributing and making our mark in the area of InsurTechs. The first step of the journey is understanding the phrase “InsurTech Actuary”. Here is my attempt at defining it.

What are InsurTechs?

Before we get into defining the actuary focussed on this brave new world of InsurTechs, let’s define InsurTechs and argue why actuaries are best placed to help them. InsurTechs, put simply, are technology focussed start-ups aiming to solve a specific problem(s) of an insurance value chain with the help of the latest technologies like Blockchain, Artificial Intelligence/ Machine Learning, Internet of Things (IoT) and Big Data Analytics.

The challenge with most InsurTechs is that they are driven by techies and have limited understanding of the insurance business. This is exactly where actuaries come in.

Unarguably actuaries understand insurance business better than any other insurance professionals. Actuaries know where each dollar comes from and where every cent goes. By design of the job, actuaries working in the (re)insurance industry collaborate with almost all the functions and hence know the pain-points (which happen to be the problem statements for InsurTechs) well. Lastly, we are trained to quantify the impact of the proposed arrangement (which is crucial for any collaboration) and communicate the solution in a layman’s language. And yes, we naturally think of regulations which often features at the very end of InsurTechs’ checklist! Clearly, actuaries are best placed to be the “Insur” of InsurTechs!

Upskilling

While actuaries have an edge over other insurance professionals, we sure have some grounds to cover. The most crucial being mindset change.

In the start-up world, you first jump and then look for a parachute. While I don’t subscribe to the idea, the point is there is a lot of ambiguity and lack of data especially at the early stages of InsurTechs. Navigating ambiguity and making most of the available information then becomes the key and the urge to be precision freak requires curbing!

The know-how of the underlying technology becomes of paramount importance in the context of InsurTechs. We should be able to understand the technology to be able to identify the problems it can solve, the existing risk it addresses and the new risk it brings in.

For example, smart home insurance powered by IoT devices sure helps in reducing the losses due to freezing pipes by triggering the heating devices at the right time. However, they bring in cyber risks by giving opportunities to hackers who can play with the devices by sitting in another part of the world.

Actuaries as business consultants to InsurTechs

Now that we have established that actuaries are best placed to help and mentor InsurTechs, identified the key areas of upskilling, the question is how can we contribute. The short answer is by helping InsurTechs collaborate with (re)insurers, which is one of the primary aims of InsurTechs. After all, they aim at solving business problems of the insurance value chain.

Actuaries can start adding value right from the very beginning by screening the proposed solutions, fine-tuning them, and aligning it with the pain points of the insurance value chain. While quantifying the value add is the easiest yet haziest part, enhancing the pitch to (re)insurers and communicating in the langue that insurers understand sure could be the clincher. The professional network and insights on which insurers are innovation-friendly and most importantly zeroing in on the right stakeholders in the insurance company can cut down the collaboration time substantially.

Framework

Over the years I have helped about a dozen InsurTechs, spread over 5 continents, and at various levels of maturities. I have now developed the following framework which comes handy in advising InsurTechs. While the framework has worked reasonably well, just like the InsurTech world, the framework is evolving as well.

It is evident that there are no “arrows” in the framework and that’s because there is no fixed order that would fit all. For example, when one is trying a new line of product, it is important to first talk to the re/insurers in order to get validation of the idea and fine-tuning can continue till the very end.

Case Study: Motion Sensing Game and Health Insurance

Now that we have a framework in place, let’s see how it applies by taking the example of one of my first assignments of helping a UK based health-tech which had plans to develop a motion-sensing game at the time they approached me.

The argument of the client was straightforward and yet powerful. The motion-sensing game requires the users to do move hands and legs, which essentially implies that the users would exercise and burn calories becoming fitter over a period of time. The approach is superior to the existing health telematics arrangements as playing the game is addictive unlike walking, jogging or running. Moreover, the impact is expected to be higher since gaming tends to be associated with obesity. The target audience is expected to be not-so-healthy at the time of the start but playing the addictive game could do the trick. Like most InsurTechs, the client wanted to collaborate with the insurers and the specific ask was to help the users of the application get insurance premium discounts on their health insurance contracts.

In this case study, the first and the fourth steps identified in the framework i.e. fine-tuning the solution and identifying the right re/insurer(s) were already in place. The health telematics was already an established concept in late 2017 and the client already had contacts in a few insurance companies who had shown interest in exploring the health telematics. The focus was then on the remaining two bits.

We identified one of the cancer focussed products offered by the insurer wherein we had contacts and did research to establish a relationship between exercising and reduction in claims frequency of the covered cancers. Especially for the obese. The next step was to reverse-engineer the insurance product and plug the reduction in morbidity rates to arrive at the revised premiums. Armed with this, the client’s pitch for the insurers was simple yet effective. He could claim to understand the pricing of the said insurance product reasonably well (based on the reverse-engineered=spreadsheet model), had the proposed revised premiums that were backed by an actuary! He went on to do paid-pilot with a Fortune 100 insurer and many more collaborations followed.

A word of caution

InsurTech world sure is exciting but they bring their own set of challenges especially professional and ethical challenges.

For example, vehicle and health telematics devices can help in fine-tuning insurance pricing thus rendering bad drivers and unhealthy lives potentially uninsurable. Would we still be serving the cause of public interest? Possibly not!

Conclusion

InsurTechs are for and have impacted every part of the insurance value chain. Given our unique combination of skills combined with insurance knowledge, we actuaries are best placed to add value to InsurTechs and help them thrive. The ever-evolving exciting world of InsurTechs also brings new professional and ethical challenges and it is imperative that we continue to maintain the high professional standards.

[i] Willis Towers Watson — Quarterly Briefing Q1 2020 — https://www.willistowerswatson.com/en-GB/Insights/2020/05/quarterly-insurtech-briefing-q1-2020