The disruption caused by the coronavirus pandemic has significantly accelerated digital transformation in Canada’s insurance sector as insurers were forced to adjust to accommodate remote workforces, expand their online capabilities to support distribution, and upgrade their digital channels virtually overnight.
The situation has “sparked an insurtech revolution,” according to Mississauga-based small business magazine CanadianSME.
“When COVID-19 touched landfall, it drove cross-industry digitalization and expedited the rise in insurtech, which was already a continuously rising sector within the greater tech, startup, and financial worlds,” the publication explained.
Globally, insurtech firms established records in terms of the most deals and financing after the pandemic struck, with funding soaring to an all-time high of US$15.4 billion (around $20 billion) in 2021, data gathered by market intelligence platform CB Insights and insurance giant Gallagher revealed. This figure nearly doubled the total amount raised in 2020, with Q4 2021 posting the highest single quarter on record for insurtech investment.
While many insurance companies in the country view fintech advancements as a threat to their sector, CanadianSME believes that the industry is “on the verge of disruptive innovation,” which can be the result of either an external source, such as the advent of sharing economy, or the potential to enhance operations through the adoption of artificial intelligence (AI).
“The use of technology in the insurance sector is spurring innovation and assisting it in meeting the requirements of the modern world,” the firm noted. “Industry disruptors can provide a cutting-edge method for lowering expenses and increasing client engagement. Because of changes in client preferences, fintech may now provide tailored products and services, potentially causing conventional insurers to lose overall market share.”
What are the top insurtech trends reshaping Canada’s insurance landscape?
To find out how the emergence of insurtech companies will reshape the nation’s overall insurance landscape, Insurance Business turned to several market intelligence and fintech experts. Here are the top insurtech trends these specialists say will have the biggest impact in the industry.
1. Increased partnerships between insurers and insurtech startups
With the insurtech sector primed for significant growth in the next few years, CanadianSME expects collaboration with major insurers to become mainstream.
“Partnerships with insurtech startups might help insurance companies present themselves as connected, dynamic, and possibly disruptive, allowing them to climb beyond their existing image,” the publication explained. “Furthermore, the opportunity to participate in the adoption, enhancement, and development of breakthrough technologies may aid in employee recruitment and retention in Canada.”
According to the magazine, the advancements closely connected with insurtech focuses on continuous learning and growth and it will be interesting to see in the future how these innovations evolve and impact Canada’s talent market.
2. “Avalanche” of data from connected devices will allow carriers to better understand clients
There will be an estimated one trillion connected devices globally by 2025, which will lead to an “avalanche of new data” that will help enable insurance carriers to understand their clients more deeply, according to McKinsey and Company.
The global management consultancy firm also predicts that this explosion of information will result in “new product categories, more personalized pricing, and increasingly real-time service delivery.”
CanadianSME added that using big data to price more competitively is among the points of attack of insurtech providers.
“Insurance… is based on risk and predicting how dangerous a firm, person, or event is,” the company noted. “The more the insurer’s knowledge about the customer, the more accurate the projection. AI can analyze data and situations more quickly, boosting accuracy, and improving consumer customization.”
3. “On-demand” coverage will go mainstream
Offering on-demand coverage, which allows people to obtain insurance – including for their home, vehicle, and travel – just when they need it is another “angle of attack” for insurtech firms, according to CanadianSME.
While the publication considers this offering as a “newbie,” the company expects this product line to go mainstream, “given millennials’ willingness to buy on-demand and usage products.”
4. Improved claims experience to drive client retention
In its latest Status of the Canadian Insurtech Landscape report, Montréal-based fintech investment firm Luge Capital stressed the importance of quality customer service to retain clients, especially since insurers do not have the luxury of frequent customer interactions, unlike banks.
“As the distribution of insurance products becomes more and more digital, the friction of switching between insurance carriers will likely decrease,” the firm noted. “Insurers can differentiate themselves by providing superior customer support during the claims process.”
Some of the opportunities insurtech brings in helping insurance companies drive client retention include:
- Speeding up claims processing using automation AI and computer vision
- Proving more transparent collaboration between multiple parties such as the customer, insurer, adjustor, and service providers
- Providing disaster support to the customer during their time of need
5. The rise of “full-stack” insurtechs to insure new risks
According to Luge Capital, full-stack insurtech startups, or those that manage the end-to-end process of insurance from creation and underwriting to distribution of policies, will emerge in specific categories where traditional insurers have been slow to innovate.
“Most often, these startups share or completely pass through the risk to an insurer or reinsurer,” the investment firm explained. “For example, cyber insurance is a small, but growing line of business that many incumbent insurers are yet to fully understand the risks of or understand how to truly evaluate. This provides an opportunity for startups that have technical expertise in cybersecurity to create new underwriting models and design cyber insurance products that the startups can directly distribute.”
The company added that reinsurers have been showing an increased interest in partnering with these new-age distributors, further creating opportunities for full-stack insurtechs.