The More Things Change

What revolution?

The more things change…

I’ve just read an article in Forbes with the headline How AI Is Changing The Game In Insurance.

After the journalist extolled the possibilities by declaring an old trope heard so often at insurTech investment conferences – that the insurance industry is “ripe for transformation by newcomers in the space” – the article was just a lightly edited Q&A with Daniel Schreiber, CEO of Lemonade.

They’re the self-described “insurance company powered by AI and social impact”.

We’re still waiting for technology to fire its silver-bullet game-changer. I believe we will keep waiting, because our sector’s leading incumbents – from Aviva to Zurich – are not about to be ousted. With decades or even centuries of experience in the insurance game, they know what they’re doing.

They’ve survived because they deliver affordable products which people choose to buy. Equally, they have generated consistent profits for shareholders, and benefits to society. And lo and behold, they’re also the leaders in applying insurance technology.

Yes, the London market is renowned for being a step or two behind banking, but conventional insurers have in fact always been rather quick to adopt technology, even Lloyd’s. It was one of the first commercial organisations to deploy an IBM mainframe, and by the 1970s had multiple linked Memorex terminals.

Today, Lloyd’s Lab is by far one of the world’s most successful insurTech incubators.

What revolution?

Lemonade, far and away the highest-profile of the insurTech consumer insurance revolutionaries, shows that the trick is not to revolutionise. Its business model is a blend of the best characteristics of conventional and mutual insurers.

True, the NYSE insurTech darling leans heavily on data to get the underwriting right, but it relies equally heavily on reinsurers, and most heavily of all old-fashioned incumbent insurers.

Lemonade has just announced a major new partnership to launch its “instantaneous and delightful experience to residents in [sic] the UK.”

The quasi-revolutionary is to work with none other than Aviva, that most traditional and established of all UK composite insurers. It will “replace brokers and bureaucracy with bots and machine learning, aiming for zero paperwork and instant everything,” which no doubt will suit Aviva and its customers – although the partnership doesn’t merit mention on Aviva’s own website. It does not constitute the “transformation by newcomers” predicted by Forbes any more than the introduction of the typewriter transformed the magazine industry (it took the internet to do that).

A hard road

The insurance industry is incredibly complex.

The challenges of moral hazard alone are unique to our sector, and centuries of experience cannot be duplicated instantly by newcomers, no matter how good their tech.

That, presumably, is why Lemonade has selected a UK partner which is built on an insurer founded 300 years ago. As that partnership reveals, tech has a great deal to contribute to the industry. Years before Aviva’s Lemonade partnership, the UK’s incumbent insurers had all adopted technology, to one degree or more, to improve their customer experience. Many more have moved to embrace new technologies to gain insights and efficiencies behind the scenes. Tech has been present across the functions, from acquisition and underwriting to claims and settlement, for years.

And it has been renewed. For example, at least one major UK personal lines insurer accepts household claims by app and bot without a big-name insurTech partnership. The process includes the required submission of a photo of damaged goods.

Such pictures, in the background, are instantly compared to the internet, where cheats are exposed. Digital signing and biometrics add security, and the process itself is fast and efficient for everyone involved. Does that mean AI is changing the game? Does it make the incumbent an insurTech?

The answers are no, and no. Certainly AI is making some parts of the game easier for everyone to play, but it’s undeniably the same game, with the same major players. Nor does our incumbent become an insurTech revolutionary, because behind their advances are several insurance technology companies, each contributing to the success of the modernisation of the world’s conventional risk carriers. It’s more like a scheduled update than a revolution – albeit a little bit overdue.