What Is Insurtech?

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What Is Insurtech? A Brief Insight

As you’ve noticed this year I have been fascinated with the world of fintech from looking at many countries and regions around the world and looking at how an array of startups are shaping financial technology. Today, I provide a brief insight into insurtech, a buzzword that you might have heard a lot of this year.

So what is insurtech? The term which fits under the fintech umbrella, relates to the current changes in the insurance industry which has seen both the adoption and evolution of digital technology.

In addition, there are six components to insurtech : p2p insurance, e-commerce insurance, brokerage, health insurance, usage driven insurance. Firms that operate in these respectable insurance areas have one common goal in mind – to focus on the consumer and digitalisation. For example, using the likes of artificial intelligence in the insurance industry, builds up a deep understanding of a client’s needs and helps to understand what additional offers and services they may require.

Since 2013, the insurance sector has seen an ever-growing demand for creativity, new digital technology, and disruption. (Tech Bullion, November 2016) Companies such as AXA have become of the first to become a digital insurer. The French multinational established a lab in Silicon Valley and affiliated themselves with social media giant Facebook back in 2014. Many commentators during this time were expecting big things from the likes of Amazon, Apple, Google, etc.

However, a year later, Google launched a new tool to sell car insurance to U.S. web searchers. Things didn’t go swimmingly, within a year  the search engine giant had shut down its insurance business. Adam Lyons, the founder of TheZebra.com (a comparison site) mentioned in an Insurance Business article that : “Auto insurance is a complex product and a lot of folks underestimate that.”

He also mentioned that the search engine titan focused primarily on price, although this works very well with some products, you need to ultimately have a deeper understanding and be more involved. Lyons stressed that insurance is proving to be one of those industries.

Insurtech and IoT

Insurtech IoT

If a company like Google has failed at insurtech, how does this form of fintech evolve and prosper? It seems that by combing other forms of disruptive tech such as the Internet of Things (IoT) is one method that will change the industry. The beauty of using IoT is the data that it generates. The future of smart homes and self-driving cars means that a lot of insurtech companies will partner with an array of device manufacturers.

For example, insurance companies have partnered with device manufacturers like Water Hero, which monitors and displays water flow in real time. It’s easy to see the appeal in this partnership given that one-third of all household claims in The States are related to water leaks.

As well as using IoT, big data and algorithms are also imperative for the industry. It’s vital that they leverage IoT tech to gather more data about customers’ homes, cars, and even the consumers themselves, insurance companies can therefore utilise real-time data, predictive modelling, and machine learning to create new business models as well as developing new products/offers for their customers.

Insurtech 2017 Predictions

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This year has seen a lot of insurtech investment. Research from CB Insights indicates that venture capital firms made 126 investments in insurance globally in the first nine months of 2016, with a total value of $1.4bn (£1.1m), compared with 118 for the whole of 2015 and 26 in 2011.

As with most things in the tech world, it’s a rapidly changing landscape, as a majority of analysts have already pointed out, next year will have a lot regulations set in stone plus political changes.

One prediction for insurtech in 2017 is that there will be more new entrants to the broker software market. One commentator recently mentioned that tech companies and startups such as Applied Systems, Transactor, Vlocity and Insly are entering the market and looking to displace the incumbents.

In addition, in 2017 it is predicted that insurers will embrace a startup feel as they learn and embrace startup methods. The likes of AXA (as previously mentioned) have made some great results from partnerships. This is something that’s going to be on top of insurance firms’ agendas in the new year.

The final prediction that has been mentioned by many is that the broker proposition will evolve. Traditionally, in the world of commercial insurance, it has been the Holy Grail for brokers to become clients’ strategic risk advisors. In 2017,insurtech will aid brokers by giving efficient solutions to deepen client relationships.

It’s fair to say insurtech has made insurance sexy – something we thought we would never hear! An industry that has been static for some time now, thanks to using innovative tech such as IoT, AI, and using APIs things are finally moving forward. 2017 looks to be a very interesting and exciting year for insurtech with numerous players and the amounts of investment expected to surpass those of fintech very soon.

*Feature image : Fintech Switzerland

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Chinese P2P Lending – The Red Dragon Gets Fiery with the Industry

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Continuing with my fintech posts once again, I return to Asia and look at Chinese P2P Lending.

Chinese P2P Lending – A brief insight

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China’s peer-to-peer lending sector has emerged as the largest and most dynamic online alternative finance sector in the world. (ACCA, October 2015)

The P2P lending industry has increased since 2011, with 2,600 platforms by the end of 2015, but has experienced stops and starts due to issues in controlling risk. Over the past year around 1,000 businesses have closed. Risk has been a major talking point, especially with credit risk – a few commentators have mentioned that data mining could provide a way to identify better borrowers, but this ultimately depends on availability and dimensions of data.

In addition, many have stressed that standards need to be put in place in the industry such as being more transparent, the requirement of loan loss provisions, as well as having safety requirements that are put in place to modernise and regulate the industry.

Chinese P2P Lending – Ezubao Scandal

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It’s no surprise that many have commented on the industry and how measures need to be put in place after the Ezubao scandal. At the start of the year, it was announced on Chinese state media that the company cheated over 900,000 investors out of US$7.6 billion.

According to a few sources, 95 percent of investment projects on Ezubao’s site were fake.

The downfall of Ezubao definitely tarnished the industry’s reputation in China, however, the government are clamping down on companies that don’t play by the rules.

They have banned P2P platforms from securitising assets or offering debt transfer mechanisms that mimic securitisation. Companies are prohibited from using P2P platforms to finance their own projects according to The FT.

These regulations mark the first comprehensive framework for regulating the P2P industry in China.

Xu Hongwei, chief executive of Online Lending House told the FT : “In the past when there basically were no limits, and lots of people operated in the grey area. It won’t be like that any more. Now that we have standards, you just follow the standards. The whole industry will become more normalised.”

The Chinese government has a made a push on alternative finance to help people who struggle to access loans from banks (who are known to lend to large corporates or those with hard assets to pledge as collateral).

There are still over a 1,000 what has been dubbed as “problem platforms” in China and these equal to nearly half of all platforms.

Other rules that have been in place that standout include restricting P2P groups from operating “fund pools” in which investor funds are not matched with specific loan assets.

Also, a cap on the amount consumers and businesses can borrow has been put in place. For consumers the cap stands at 200,000 yuan on one platform a 1 million yuan over multiple platforms. For businesses the cap is 1 million yuan on a single platform and 5 million yuan over multiple lenders. (Crowdfund Insider, August, 2016)

Moreover, P2P companies will not be allowed to operate “offline”. Platforms must abide to transparency regulations such as lending statistics and the rate of defaults.  In addition, a blacklist will be put together to block bad actors from fraudulent activities.

Before these P2P rules came into play (and the Ezubao scandal), people didn’t really judge on which platform is good or bad, however, now they have a clearer idea on what’s going on. As a result, investors have become more vigilant on platforms that are breaking the rules.

*Ezubao Image : Fortune