Ripe for Insurtech Disruption
January 31, 2019
workers' compensation segment of the property/casualty (P/C) insurance
business is a prime target for technology investment to maintain
competitiveness and bolster performance, according to Fitch Ratings.
"As the largest U.S. commercial lines segment, workers' compensation is
a focal point for insurers' efforts to leverage new technologies to gain
operating efficiency, reduce workplace injuries and improve claims
outcomes," says Jim Auden, Managing Director at Fitch. "Insurers that
lag in innovation face the risk of adverse selection in their
underwriting portfolio and expense disadvantages--changes that make them
more likely consolidation targets given recent market M&A activity."
Technology enhancements are a consistent theme in the insurance
industry's history. Expanded ability to process, analyze and store large
and more diverse volumes of data is creating greater modeling
sophistication in risk segmentation and pricing. Data analytics in
claims can help speed resolution, uncover fraudulent activity and
predict high severity incidents. Further opportunities to improve
modeling and risk management capabilities are emerging from the
utilization of artificial intelligence (AI) and machine learning to more
readily incorporate new information garnered from wearables, sensors and
other connected devices into decision making.
Although most workers' compensation underwriters are operating from a
position of strength as 2018 represents a rare fourth-consecutive year
of market underwriting profits, the business has also experienced
historical instances of very large losses fueled by inadequate pricing
and claims volatility. Success of insurers' technology initiatives is
measured in part on generating steadier results over the long term.
insurtech firms, mainly funded by venture capital and focused on
providing technology solutions in many operational areas and across
multiple business segments, represent a nimble force accelerating the
pace of change.
In response, insurers
are more actively investing in or creating strategic partnerships with
insurtech firms to gain insight or are developing their own innovation
labs to foster creative development. Insurers are seeing competition
emerge from start-up underwriters and managing general agencies (MGA's)
with direct, data driven on-line platforms including Next Insurance in
small commercial lines and Pie Insurance in workers' compensation.
Uncertainty remains as to whether these newer entrants can build a
profitable business with sufficient operating scale.
The Fitch special report published today, "Innovation in Workers'
Disruptive Technology: Insurance," can be found on www.fitchratings.com.