InsurTech, Innovation, Crypto & Regulation – IMAC Educational Event

George Town, Grand Cayman, September 19, 2023 InsurTech and Innovation were among the key issues covered at IMAC’s latest in-person educational session for members, held at the Camana Bay cinema.

The presentations focused on a number of areas, including trends affecting the future of insurance, drawing on the recent PwC ‘Insurance 2025 and Beyond’ report:

  • A wider trust gap in an uncertain world: According to the 2022 Edelman Trust Barometer, only 54% of people actually trust the financial services sector, which is below many other industry sectors. That creates a real opportunity for insurance products that can build trust.
  • Rapidly evolving customer needs and preferences: Customers expect insurers to provide personalized solutions, beyond risk-transfer obligations. That means end-to-end solutions covering risk prediction, prevention, and intervention, all underpinned by powerful digital and data capabilities.  
  • An increasingly digital and AI-driven world:  Thiswill only accelerate and will speed up processes like underwriting, claims payments and fraud identification.
  • Climate risk and sustainability: Reinsurer Swiss Re estimates up to $183 billion of premiums could be generated globally by 2040 as a consequence of climate change, mostly in property insurance. More physical risks will require new products and services to address climate risks.
  • Convergence collaboration and competition:  Increased collaboration will bring more players to the market, as demonstrated by the growth of InsurTech start-up companies.

Focused on the Future

Insurers are responding to future challenges in various ways, but the companies that can most effectively cope with disruption will be the most successful, by reinventing themselves with an emphasis on focusing on their customers. Incremental change will then follow, as companies restructure business and operational models to put the customer first. Changes to coverage and services, along with more support for customers as their needs evolve, will create a unique business and operating environment that redefines insurance and risk.

Startups focused on InsurTech are clearly playing a major role accelerating the adoption of new technology in the insurance sector. Some 48% of new startups are in the IT and Software as a Service (SaaS) sectors. InsurTech companies are estimated to generate premiums of $500 billion by 2025 and a third of insurers are planning to collaborate with InsurTech players outside the insurance industry.

InsurTech risks raise more considerations for regulators, such as providing an adaptive regulatory framework and compliance requirements to ensure consumer protection without stifling innovation.  Insurance managers also need to be considering cybersecurity and data privacy risks, alongside regulatory, compliance and other operational risks. Continuous learning will be key to staying abreast of these trends, risks and opportunities.

AI and the Metaverse

AI in the insurance industry will also require careful consideration given the giant strides technology has made. Some 15 years ago artificial intelligence was simple character recognition but with today’s systems based on machine learning and human-like intelligence, the market has caught on to generative AI, using it to generate text, images, and audio. AI in the global insurance market is expected to reach $45.74 billion by 2031 at a compound annual growth rate of 31.5%.

Companies who have fully embraced AI will ultimately be able to provide better customer experiences, improve decision making, drive innovation in products and services, as well achieve cost savings and efficiencies in operations, leading to increased productivity.

Insurers can also explore further opportunities in the metaverse, with its new and emerging risks and create products that protect people in both the real and virtual worlds.  New business and risk strategies can bring forward innovative coverages and products. These include accidental loss due to disruption in metaverse event programing or technology capacities and constraints. Loss of network and service outages can cause severe financial loss to users, platforms, brands, companies, and event promoters.  Risks relating to criminal and malicious behavior are also driving increased need for insurance and reinsurance coverage for financial fraud, hacking, IP theft, privacy and security/malware.

Technology Drives Strategy and Success

While no one insurer has yet mastered all the ways to be successful, the leading carriers all set and stick to goals and support them with a technology strategy built on integrated data, holding themselves accountable at every stage. These companies are truly customer centric, moving beyond selling products created in-house for single transactions. Instead multiple coverages are offered, alongside services and support for customers as needs change over time.

IT needs to be considered a strategic driver, not just a maintenance function. This can be helped by a having a flexible technology base and a strategic IT function that enables effective implementation, while facilitating internal and external integration, and speed to market. Winning firms also focus on partnerships, building ecosystems and embedding options that place carriers at the point of sale and broaden market reach, with compelling career paths that fit current and future skill needs.      

Isabel Gumeyi of PwC commented: “Technology innovations are transforming the insurance industry and incumbents are stepping up their transformation efforts. A fresh approach to digital transformation and risk management is needed to drive a sustainable competitive advantage by insurers in the Cayman Islands and around the world.”

Isaac Espinoza of Root, Inc added: “Insurtech isn’t using tech simply for tech’s sake. Technology can improve the efficiency (underwriting, pricing, claims handling, operations) of the insurance business and support the evolving demands of the customer (digital experience, customized products, convenience, etc.) resulting in margin expansion and an improved customer experience.”

Regulation and Crypto Markets

Aaron Unterman of XReg Consulting then spoke about “Crypto Markets and Regulation”, discussing ther causes of crypto market instability and the lessons learned. He described an overall lack of corporate governance and poor risk management around counterparty and systemic risks in the industry, as well as misuse of customer deposits, conflicts of interests, liquidity risks, overleverage, lack of oversight, market risks and cybersecurity risks.

Fallout from the crypto market included financial consequences for crypto firms, an increased focus on AML and new business models such as decentralized finance, he explained, as well as the avoidance of crypto issuances especially in the US. Furthermore, new banking relationships will be required in the sector following the collapse of two significant banking partners to the crypto industry. The industry has also seen some de-risking, especially given the lack of integration into traditional financial services.

Jurisdictional approaches to crypto regulation and the global implementation of virtual asset regimes shows a disparity between those with regimes in place, while others have banned crypto completely. It was noted the Cayman Islands is a leading jurisdiction for crypto funds and Decentralized Autonomous Organizations (DAOs) with 19 Virtual Asset Service Providers (VASPs) registered. Cayman is currently at the AML/cybersecurity registration phase but a comprehensive prudential and conduct licensing regime for trading platforms and custodians is expected to be finalized during Q3 2023.

Looking at crypto regulation beyond 2023, enhanced regulatory standards are likely to tackle Decentralized Finance (DeFi), Non-Fungible Tokens (NFTs), and staking services. Further industry restructuring, company failures, consolidation and movement between jurisdictions are also expected.

Blockchain Insurance Solutions

Aaron then explained that an increasing availability of blockchain industry insurance products are focused on areas such as insurance for customer assets such as custodians. Various new regulations contain insurance requirements such as CIMA’s for custodians or trading platforms that take custody of customer assets to have insurance.

Overall it was noted that blockchain can help customers and insurers in a number of ways, by enhancing trust and transparency, streamlining claims processing and improving security and fraud prevention.  It can also provide efficient reinsurance, assist with a move to smart contracts, improve the customer experience and spark greater collaboration throughout the industry. Various examples of insurance products were discussed, including bitcoin denominated long-term insurance products and smart contract insurance against loss or theft of digital assets amongst others.    

Aaron Unterman commented: “After a tumultuous period for the global crypto industry we are seeing signs of stabilization and new opportunities for the Cayman Islands and global insurance industry”.  

The event included presentations from Isabel Gumeyi, Director, PwC; Isaac Espinoza, SVP of Strategy & Reinsurance at Root, Inc. and Aaron Unterman, Managing Director, XReg Consulting. The session was moderated by Suzanne Sadlier, Co-Chair of the IMAC Education Committee.