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Great article in the Journal
Curb Your AI Enthusiasm: Just Look at the Insurtech Carnage
Here are some excerpts:
Uprisings can fall short, even robotic ones. Investors riding the artificial-intelligence wave should look at the insurance industry for a cautionary tale.
Shares in “insurtech” startups, which look to upend traditional insurance through the use of automation, data and AI, have enjoyed a small bounce lately thanks to the mania unleashed by OpenAI’s ChatGPT.
...
In theory, few industries should be easier to shake up than insurance, which scores very low on customer satisfaction and is run by big, boring corporations set in their own ways. Data and statistics have been at its very core ever since British mathematician James Dodson created the Equitable Life Assurance Society in the 18th century.
...
Similarly, Hippo employs “smart home” kits to constantly monitor risks of fire, water and other damages. Lemonade uses AI and techniques from behavioral economics to fast-track all types of insurance. Yet the revolters have failed to storm the gates.
...
Root’s business has slowed lately, a red flag for investors looking for fast-growing companies with potential economies of scale. Even more concerning is that new technologies haven’t yet proven that they are better at pricing risks: Old-school insurers still have lower claims relative to premiums than insurtech firms, though the record of the latter group is improving.
The digital age has never shown much sign of threatening insurance giants. They haven’t seen their market share eroded or even had to adapt their businesses much. Price-comparison websites may have injected some extra competition, but people haven’t fundamentally changed how they buy insurance, even as they embraced online apps to hail rides, get food delivered or go on vacation. That suggests even the takeover value of insurtech stocks may be low.
As it turns out, incumbents had good reasons to be conservative. “20 years ago we thought distribution costs would be lower using the internet, but this is absolutely not the case: Paying Google is more expensive than paying an agent,” said Frédéric de Courtois, group deputy chief executive of French insurer Axa....
Curb Your AI Enthusiasm: Just Look at the Insurtech Carnage
Here are some excerpts:
Uprisings can fall short, even robotic ones. Investors riding the artificial-intelligence wave should look at the insurance industry for a cautionary tale.
Shares in “insurtech” startups, which look to upend traditional insurance through the use of automation, data and AI, have enjoyed a small bounce lately thanks to the mania unleashed by OpenAI’s ChatGPT.
...
In theory, few industries should be easier to shake up than insurance, which scores very low on customer satisfaction and is run by big, boring corporations set in their own ways. Data and statistics have been at its very core ever since British mathematician James Dodson created the Equitable Life Assurance Society in the 18th century.
...
Similarly, Hippo employs “smart home” kits to constantly monitor risks of fire, water and other damages. Lemonade uses AI and techniques from behavioral economics to fast-track all types of insurance. Yet the revolters have failed to storm the gates.
...
Root’s business has slowed lately, a red flag for investors looking for fast-growing companies with potential economies of scale. Even more concerning is that new technologies haven’t yet proven that they are better at pricing risks: Old-school insurers still have lower claims relative to premiums than insurtech firms, though the record of the latter group is improving.
The digital age has never shown much sign of threatening insurance giants. They haven’t seen their market share eroded or even had to adapt their businesses much. Price-comparison websites may have injected some extra competition, but people haven’t fundamentally changed how they buy insurance, even as they embraced online apps to hail rides, get food delivered or go on vacation. That suggests even the takeover value of insurtech stocks may be low.
As it turns out, incumbents had good reasons to be conservative. “20 years ago we thought distribution costs would be lower using the internet, but this is absolutely not the case: Paying Google is more expensive than paying an agent,” said Frédéric de Courtois, group deputy chief executive of French insurer Axa....
