Catch 22 of Insurtech Transformations

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When we looked at Insurance in our artificial intelligence deep dive, nearly $400 billion of cost was up for grabs as a result of the platform shift. But there's a catch. Getting to the other side can look pretty much impossible for an incumbent. Ripping out legacy systems, which support billions of dollars of revenue, and sailing into an unproven direction is not a popular choice for a public company CEO. So instead of jumping onto entirely modern architecture, companies like John Hancock partner with transformation consultants / software providers like Infosys for multi-year $10 to $100 million projects. Further, according to the innovation officer of MetLife, only 30% of execs really "get it", and even then you only have 18-24 months of runway before the company starts to ask for operating results. Compare that with the 5-7 years that are afforded a new startup to get off the ground. And we know that startups are much faster at execution.

On the other hand, we see the symptoms of fundamental change all across the space. For example, Allstate had to send 3,000 employees to assess the damage from hurricanes Harvey and Irma last year. But it also deployed drones (trained on 5,000 hours of prior flight time), which provided needed image data before the humans even got to the location. How soon will drone pilots and video Facetime agents replace the traveling adjusters? Similarly, companies like Roost are deploying telematics in homes, retrofitting old smoke alarms to detect water damage, weather issues, and other dangers, with connected data streams into smart phones and monitoring systems. If this data is real time and builds out the IoT/AI corpus, what need is there for human assessment in the majority of cases?

The idea that terabytes of daily data from smart systems can interact with legacy insurance infrastructure seems untenable. But in 18-24 months of execution, the best outcome is that these products can become mere bolt-ons. Compare that to Lemonade's approach, which is open sourcing its insurance policies on GitHub and practicing radical transparency on its metrics and approach. And further, entirely new cyber risks are emerging, around which traditional insurers have no systems at all. Crypto projects like Coinsurance (pay out in case an Initial Coin Offering fails to list on an exchange) and Coin Governance System (pay out in case of ICO scam) are rethinking the bundling of financial products which are becoming top of mind to many Millennials, 5-10% of which own crypto currencies. Such new entrants will need to get enough scale for the old guard to believe that the world is changing -- see you in 5 years.

Source: DigIn (30% ExecsDrones), Coverager (John HancockRoost), LemonadeCoin Governance System