Is “AI” headed down the same road as “insurtech”?
Is “AI” headed down the same road as “insurtech”? | Insurance Business America
The term is becoming redundant, expert argues
Artificial intelligence (AI) has grown to encompass a broad range of financial technology applications, and insurtechs billing their offerings as “AI-powered” must work harder to distinguish themselves in a crowded marketplace, an expert has warned.
Dr. Andrew Johnston (pictured), global head of insurtech at Gallagher Re, suggested that the label “AI” is becoming increasingly redundant as the technology becomes inherent among insurtech offerings.
“Historically, I would say that AI is probably suffering the same fate as the label of ‘insurtech,’ in that it now is a very broad church,” he told Insurance Business.
“It applies to almost everything, and every modern technology that’s being built right now has an AI-type component. So, the term itself is arguably redundant because pretty much any new initiative, business, or capability coming into our industry will be technologically enabled.
“I think we just want to be careful to be specific and to understand the various iterations and sub-sectors of AI and their applicability to the industry so that [AI] doesn’t become a confused term that people throw around.”
The generative AI boom: How should insurtechs position themselves?
Despite his reservations about the liberal use of the “AI” label, Johnston said he is optimistic about the advancements in the technology, particularly in generative AI.
“Looking at technology in isolation, generative AI possibly has the biggest application for us. I also think linear algorithms for things like pattern and anomaly detection have huge applications in our industry, particularly around claims. Clustering and large language models have a significant application in distribution, particularly when we think about things like embedded insurance,” he said.
But Johnston stressed that insurtechs’ focus should be on applying technology to create value and efficiencies in the industry, not AI for its own sake.
“It’s about understanding the technology’s inherent capability in the context of an insurance company’s workings and where it can get the most value,” he said. “To do that, the technology firm must understand the insurance industry well enough to know the right applications.”
Where does the global insurtech market stand today?
Though Gallagher Re’s recent global insurtech report found that funding for the sector declined 43.7% on-year in 2023 (from $8 billion in 2022 to $4.51 billion in 2023), Johnston believes that the insurtech market is healthy and mature.
According to Gallagher Re, 2023 saw re/insurer investment at a record high, with 148 investments in private technology firms, 12% higher than the previous record of 132 investments in 2019.
“2023 [funding], despite being lower, was consistent; it was not volatile at all,” Johnston said.
“At the moment, you’ve got a much more accurate sense of what the market cap is worth for insurtech globally,” said Johnston. “Numbers are down, but they’ve come from a very high peak, which was unsustainable.
“Transaction volume itself didn’t drop anywhere near as much as overall capital invested. What you could ultimately deduce from that is there is still a lot of interest. It’s just that the average check size is smaller, and we have far fewer mega-round deals. I think it’s a very healthy evolution [of the market].”
The key to future success for insurtechs
Johnston also predicted that funding would see a “lift” in 2024 due to several factors, including the improving performances of public insurtech stocks; increased differentiation among insurtech firms by investors; anticipated public offerings and second waves of funding rounds; and growing confidence from industry players, particularly reinsurers, in investing in insurtech.
But what types of insurtechs will successfully find the funding they need in this environment?
“That’s the trillion-dollar question,” said Johnston. “Any company that is genuinely adding long-term value will do well.
“Until recently, some insurtechs were trying to sell the technology as the proposition and that the value is inherently in the technology. But it’s not; it’s the application of that technology and how it can improve or transform traditional commercial success criteria.
“So, I think that the insurtechs that are doing well and will continue to do well are those that understand the pain points in our industry, who are as focused on the ‘what’ as much as the ‘how’.”
Do you agree with Johnston’s views on AI and the global insurtech landscape? Please share your perspective in the comments.
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