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By Jennifer L. Gibbs and Bennett A. Moss
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A comparison of today’s business landscape to that of 15 years ago, reveals even to the most casual observer that many of the past’s most formidable industries no longer exist today. Video rental stores, photo developing services, paper newspapers, bookstores and taxis are on the brink of extinction, if not extinct. The reason for the decline of these industries is readily apparent — technology. Simply put, industries that refuse to incorporate advancing technologies into their business structure, or those who simply cannot compete with an industry disrupter’s new technologic innovation, suffer severe consequences.

Large brick and mortar companies such as Blockbuster and Borders disappear, and in an effort to keep revenues flowing, others have invested billions into new technologies to adapt into their business. The insurance industry, while historically well-insulated from new, innovative competitors due to high levels of government regulation and massive entrance costs, has made significant moves to incorporate advancing technologies into its business practices. In addition, the industry has witnessed insurance startups with unique perspectives on insurance practices emerge. As insurance startups and incumbents vie against one another to win over the business of customers, leveraging new insurance-related technologies, now known as “insurtech,” is becoming more and more important in creating (or maintaining) success in this ever-changing market.

What is Insurtech?

Insurtech is a term meaning “the use of technology innovations designed to squeeze out savings and efficiency from the current insurance model.”[1] How different market players have begun to implement insurtech into their practices differs based on incentives. For example, large financially stable carriers look for ways to hedge their risk groups more efficiently to increase their bottom line, while startups utilize insurtech to explore avenues that larger insurance firms have less incentive to exploit, such as ultra-customized policies, social insurance and using new streams of data from internet-enabled devices to adjust premiums of individual customers with real-time information.

Current Uses of Insurtech

With regard to the insurance market, personal lines insurance has been much more welcoming to technological changes than commercial lines.[2] internet of things devices, such as Fitbits and vehicle telematic devices have quickly become a part of many people’s daily routine. As a result, forward-thinking insurers have begun leveraging IoT devices to mine data, reduce risk, customize communications with customers and improve customers’ overall experience.[3] For example, auto insurance startup Metromile utilizes a small wireless device that plugs into the customer’s car, which allows the company to offer insurance premiums based on the driver’s mileage.[4] A Japanese microinsurer has begun using radio-frequency identification (RFID) chips to track livestock for insurance purposes.[5]

Beyond technological innovation, carriers have also begun implementing insurtech in the way they handle claims. Artificial intelligence and machine learning are being implemented by carriers to decrease claim handling time. For example, forward-leaning carriers have been able to drop the average cycle time of claims down to two to three days, where traditional-leaning carriers face average claim cycle times of 10 to 15 days.[6] Insurers have also utilized insurtech to employ chatbots, which work through messaging apps many customers have already installed on their smartphones.[7] These chatbots can be used to answer basic questions and resolve claims, as well as sell products, address leads or make sure customers are properly covered by their insurance, ultimately increasing the bottom line.[8]

At the 2017 Insurtech Connect conference, for the first time, the show’s main focus was directed at commercial lines.[9] Commercial carriers are uniquely positioned to face a drastic revolution in insurtech implementation. Drone technology has enabled underwriters to view data feeds of commercial properties from the air for qualification and sale of commercial policies; ways for consumers to qualify and purchase their own commercial policies directly without an agent or broker are being created; and a significant amount of information prior thought to be inaccessible is now the push of a button away.[10] In fact, Heather Turner with Insurance Business predicts that while personal lines have matured with technology over the years, insurtech in commercial lines is going to be more of a revolution.[11]

Commercial lines remains an insurance industry sector where high degrees of expertise and specialization allow insurers and brokers to carve out very specific and profitable niches in the market, making the definition of the “best” risks necessarily relative. “The specificity of commercial lines business is precisely why these insurers are poised to become the beneficiaries of new tech driving efficiency gains up and down the value chain.”[12] In an age overwhelmed by new tech, the ideal method for commercial lines insurers to recognize, compete for and win the right to write the “best” risks possible include investing in solutions and partners which enable better communication, better products and significantly better distribution.[13]

To that end, there is a big market opportunity for technology to improve communication and collaboration between underwriters, brokers and policyholders. Moreover, it is predicted that insurtech products can assist in automating the development of contract language and manage getting it filed with insurance departments in an efficient manner, helping insurers focus on emerging market opportunities instead of on creating more legalese. And finally, the commercial lines market can benefit from insurtech by employing smarter and more targeted distribution methods that put the buy decision in front of the potential policyholder at exactly the moment insurance is needed for something — for example, allowing workers’ compensation to be purchased directly from a payroll app or property insurance to be purchased simultaneously with the sale of real property.[14] These are just a few examples of how insurtech products have the potential to transform the commercial lines industry.

How Insurtech will Impact the Texas Insurance Market

The Texas insurance market is one of the largest in the country. In fact, the state of Texas incurred the second largest amount of losses under property and casualty insurance policies in 2016 in the entire United States.[15] With a plethora of different disasters, ranging from hail to hurricanes, Texas is poised to continue to be a hotbed of commercial claims. Carriers would thus be wise to contemplate implementing insurtech innovations to avoid being left in a more innovative company’s dust.

Texas has already shown a strong interest in investing in insurtech startup companies. In 2016, Texas insurtech startups raised $25.23 million in venture funding.[16] As these startup companies begin to gain more traction in commercial lines, competition is sure to follow, and competition breeds innovation. Accordingly, insurers should be sure to place themselves in a position to be open and willing to experiment with these new technologies.

Insurtech could have a vital role to play in Texas disaster relief, such as Hurricane Harvey. For example, one industry professional has suggested that drones be used to better adjust losses.[17] Should insurers fly drones over storm areas once before a storm occurs and once after, drone footage could help to assist adjustment and to quickly and efficiently pay out valid claims.[18] By knowing exactly how property appeared before a disaster, insureds and their carriers may narrow disputes relating to the actual cash value of the claim, resulting in streamlined claims processes, reduced investigation costs and in turn, lower premiums for consumers.

While insurtech continues to advance, it is unclear how Texas will react from a legislative standpoint. For instance, when artificial intelligence is used to assess damage to a commercial property, how will insurers demonstrate that their approach was reasonable under Texas fair settlement practice laws? At what point does the wealth of information available about insureds through insurtech become a violation of privacy? As technology becomes more and more involved in the claims process, there will undoubtedly be much debate as to how these innovations affect Texas standards regarding fair settlement practices.

Although insurtech is viewed by some as a threat and others as an inspiration, insurtech appears to be here to stay and at the very least will supply insurers a wealth of information previously thought impossible. Those carriers who leverage insurtech and its potential wisely, efficiently and legally could pioneer a new frontier of insurance.

Jennifer L. Gibbs is a partner and Bennett A. Moss is an associate with Zelle LLP in Dallas.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Insuretech, Investopedia (Feb. 26, 2018, 5:09 PM), https://www.investopedia.com/terms/i/insurtech.asp.

[2] Heather Turner, Key takeaway from InsureTech Connect 2017, Insurance Business America (Oct. 24 2017), https://www.insurancebusinessmag.com/us/news/technology/key-takeaway-from-insuretech-connect-2017-82767.aspx.

[3] T. Tappendorf, Five InsureTech Trends and What They Mean for Microinsurance, Microfinance Gateway (Feb. 2017), https://www.microfinancegateway.org/library/five-insuretech-trends-and-what-they-mean-microinsurance.

[4] Metromile, https://www.metromile.com/insurance/.

[5] Cattle insurance through electronic identification chip technology, Impact Insurance (Sept. 2012), http://www.impactinsurance.org/projects/lessons/cattle-insurance-through-electronic-identification-chip.

[6] Bill Brower and Todd Fannin, 2017 Future of Claims Study, LexisNexis Risk Solutions (March 2017), https://www.lexisnexis.com/risk/downloads/whitepaper/touchless-claims-white-paper.pdf.

[7] Blake Morgan, How Artificial Intelligence Will Impact The Insurance Industry, Forbes (Jul 25, 2017), https://www.forbes.com/sites/blakemorgan/2017/07/25/how-artificial-intelligence-will-impact-the-insurance-industry/#5fd02b296531.

[8] Id.

[9] Heather Turner, Key takeaway from InsureTech Connect 2017, Insurance Business America (Oct. 24, 2017), https://www.insurancebusinessmag.com/us/news/technology/key-takeaway-from-insuretech-connect-2017-82767.aspx.

[10] Id.

[11] Id.

[12] Michael Albert, Commercial Lines Insuretech: The Best is Yet to Come (August 15, 2017) http://iireporter.com/commercial-lines-insurtech-the-best-is-yet-to-come/

[13] Id.

[14] Id.

[15] Incurred Losses by State, Insurance Information Institute (Feb. 26, 2018), https://www.iii.org/publications/a-firm-foundation-how-insurance-supports-the-economy/a-50-state-commitment/incurred-losses-by-state.

[16] Jaden Black, Will InsureTech Disrupt Insurance?, Ten (Dec. 13, 2016), https://ten.capital/insuretech/.

[17] Ryan Browne, Insurance firms face major disruption from digital start-ups in most sectors, report says, CNBC (Sept. 13, 2017), https://www.cnbc.com/2017/09/13/insurance-industry-faces-disruption-from-insurtech-report.html.

[18] Id.