Novarica’s team comments on recent insurance and technology news
Advances in FinTech and analytics could lead to the creation of an “uninsurable underclass”.
Novarica comment by Jeff Goldberg, VP of Research and Consulting: “As more customer data sources become available—social media, telematics, wearables, sensors, and drones—at what point do insurers have enough real-time information to switch from a demographic-based risk-pooling model to true individualized pricing? A new report questions whether such advanced analytics could lead to an “uninsurable underclass.” The insurance industry has always tried to assess the risk of a potential policyholder to the best of its abilities, but limitations in technology and data had a secondary impact of allowing a socially beneficial distribution of risk across larger pools of people. Does the industry have a social obligation to maintain some abstraction between its customers and its risk/pricing analysis in order to maintain this approach? If insurers move too far down this path, or start eliminating broad communities of people from affordable coverage, it’s likely the government will step in with healthcare-like regulations.”
Oscar, a health insurance startup, announces cuts in coverage.
Novarica comment by Matthew Josefowicz, President and CEO: “This story has been covered with a certain amount of gloating that self-proclaimed disruptors are not immune from the pressures faced by traditional providers. We saw a similar tone in the media, especially the trade media, when Zenefits stumbled on regulatory compliance. But none of this voids the fact that consumers are eager for the ease of use and customer-experience focus that these companies are trying to deliver, nor does it change how dissatisfied customers are with the experience that traditional players offer. On the bright side for incumbents, it may be easier for them to improve their customer experience than for new entrants to effectively operate in the insurance industry.”
Hiscox may set up an EU-based insurance firm in the wake of Brexit and the future loss of “passporting” rights.
Novarica comment by Mitch Wein, VP of Research and Consulting: “Hiscox is thinking of setting up an EU based Insurance Subsidiary. This is important since today Hiscox has access to the continent from the UK through the “passporting” rights that allows regulatory capital for product reserves to be in any EU country and the regulatory oversight to be in the EU country of origin, historically the UK since they sell their specialty products through Lloyds of London. In the near future, when the UK is not in the EU, they would lose access to EU countries for their products since “passporting” will no longer be applicable. As I have discussed in a number of blogs on the topic, we expect many carriers to set up EU companies in places like Frankfurt, Paris or Dublin to retain access to EU markets.” More from Novarica on Brexit.
Annuity sales plummeted in 2016.
Novarica comment by Rob McIsaac, SVP of Research and Consulting: “While much of the reporting on the precipitous fall in annuity sales in 2016 seems to focus on the impact of the Department of Labor rules announced earlier in the year, the actual causes of the sales decline are likely more complex. Market volatility earlier this year, the election year, and other influences, some of which would actually tend to increase annuity sales, are all having an effect.
A more important question is how the Fiduciary responsibilities will be delivered to the market for indexed annuities. Since these are frequently sold by agents who are not themselves registered reps, the broker-dealer structure for variable products does not universally apply. This could force notable changes in how indexed products are distributed in the future or in the willingness of carriers that manufacture these products to step into the breach to provide support for the fiduciary function. This will be an important element to watch over the balance of 2016.” Here is another perspective on declining life/annuity sales. More from Novarica on the DOL Fudicuary Ruling here.
Fidelity officially launches robo-advisor platform, and the Economist has more to say about AI in general.
Novarica comment by Don Metz, VP of Research and Consulting: “The long awaited promise of AI may finally becoming a reality as significant progress has been made utilizing a new technique called deep learning. Taking advantage of extraordinary advances in computing power and data storage and the increasing availability of large quantities of data, large neural networks are now beginning to learn rather than just process information. This deep learning technique has the potential to enable new disruptive capabilities in the insurance industry, impacting areas such as data analytics, actuarial modeling, underwriting, and predictive analytics.”
Sun Life announces a new partnership with Plug and Play.
Novarica comment by Steven Kaye, Associate VP of Research and Consulting: “As noted in our report Buying Innovation: Insurer VC Funds and Accelerators One Year Later, more carriers are launching corporate development programs and venture capital groups, as well as serving as mentors to startups lacking insurance industry know-how. Carriers can also offer startups capital and partner networks, while in turn benefiting from a chance to get ahead of innovations rather than reacting to them. Startups can provide carriers an outside-in view of their processes. Novarica regularly attends events in Silicon Valley, and talks to accelerators, carriers, and private equity and VC firms on an ongoing basis.” More from Novarica on innovation and Silicon Valley