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Coles: ‘real-time underwriting’ is coming

Champion of insurtech: Michael Coles, CEO of Cedent

Technological innovation is already decreasing back-office and distribution costs in the insurance industry — but its biggest financial impact could come in underwriting.

Michael Coles, chief executive officer of Cedent, told delegates at a reinsurance conference in Hamilton last week that tech advances had already helped insurers to improve their expense structures and cut the cost of customer acquisition.

But Mr Coles, whose company specialises in bringing technology-driven change to the insurance industry, said technology’s application is now turning to underwriting — with a huge potential impact.

Mr Coles gave the example of a New York-based sensor wearables company, whose products include a “smart vest” that could be used, for example, by construction workers. The information it records includes how much weight someone is carrying on their shoulders and whether they are bending their knees when they pick up something heavy.

Such data would be valuable and relevant for workers’ compensation insurance, for example, Mr Coles said. It could also lead to improved risk mitigation in the workplace, he added.

“It works like the bleeping seatbelt sensor in your car,” Mr Coles said. “When it bleeps does it change your behaviour?”

Citing the sharing economy, Mr Coles said that the industry must “take risks” by working with emerging companies engaging new business models.

The more sophisticated carriers would embrace “real-time underwriting” as customers “produce more data in the past five minutes than in the past year”, he added.

Mr Coles, who was speaking at the EY (Re) Insurance Outlook conference, staged in association with The Insurance Insider, spoke about how the modern consumer seeks convenience in purchasing everything — and insurance was no different. Insurers meeting such a demand are already making inroads into the market.

“An Asia-based online-only insurer has sold 5 billion policies to 3.5 billion people in the last two years,” Mr Coles said.

This is an ongoing area of interest to investors, given that “18 of the 20 biggest funding deals have been focused on alternative distribution”.

“Insurtech” — the name given to financial technology advances in the insurance industry — was expected to reach funding levels close to $6 billion by the end of 2016, Mr Coles said. Fintech for the banking industry was being funded at double that rate, so insurtech had plenty of room to grow, he suggested.

For Bermuda, the proliferation of technology would have implications, he said. While the island had been home to much of the innovation in the industry over the past 50 years — through the advent of captives, property catastrophe reinsurance and insurance-linked securities — Mr Coles said that unlike the past, “moving forward, technology innovation will be coming from outside Bermuda, from the Silicon Valleys of the world”.