Posted today in the AFR. The momentum towards artificial intelligence is here and is the future of aerial imagery. But also, it shows that the global market is enormous and involves different classes of innovative technologies. The market is simply bigger than NEA and SFI combined so the opportunity for both businesses is substantial as they both carve out their own markets that their respective technologies allow.
SFI's innovative technology has been taken by the biggest company in the US and can also be licensed by global competitors where all revenue falls straight to gross profit, while NEA are out there spending all available free cash to produce gross profit.
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Over the course of three days Planet Lab satellites observed the comings and goings of tankers and container ships in Port Botany. Planet Labs
You may not realise it, but insurers are watching you from space. By using satellites and sensors to collect super granular information, and sophisticated data analytics to make sense of it, they are able to cover and price risks previously beyond them.
Ted Stuckey, the Wisconsin-based head of QBE Insurance Group's global innovation labs, is a data evangelist who believes mining for information is the biggest disrupter – and opportunity – facing the insurance sector.
Three years ago it was outside the realm of possibility that the private sector would work with a small start-up from San Francisco which handmakes satellites. The start-up, called Planet Labs, has so far sent 280 of them into space to map every square metre of the Earth's surface on a daily basis.
"The insights and data you get from observing a property exposure or observing maritime shipping exposure and port activity every single day from space can [lead to] better pricing decisions, help make a claim transaction faster and ultimately be a better partner for the customer," Stuckey says.
"For an insurance carrier that is gold.
"We have anecdotal examples where you are tracing port activity to better understand that risk. But we can now have [conversations] with the insured party that without this data we couldn't have. Honestly, it would be very hard to aggregate the data in any other way, other than to watch it from space." Sensors everywhere
Stuckey says it's taken him and the industry "a while" to grasp the centrality of data and data analytics, but he now imagines a world where there are Internet of Things sensors everywhere – in your car, home and on the street.
"A sort of utopian view, that everything is going to be tracked and that you can take that back to a risk."
But it's not just pricing risks. Technology is helping insurers reduce them too. IAG's executive general manager for innovation, James Orchard, says it is using sensors in flood-prone parts of the country to mitigate damage.
"It's a simple technology where a dipstick literally has a sensor on a solar panel that communicates directly with the State Emergency Service. They are placed in flood zones and tell the SES when roads are likely to incur flooding," he says.
"This is an example of how sensor technology can be used in the community to make it safer and how we can play a much more active role in that mitigation." Australian insurers have also been testing in-car technology to try to stem the epidemic of crashes caused by distracted drivers, with IAG testing a smartphone app that rewards customers who don't use their phone while they are in the car.
Where other insurers use telematics (in-car technology that monitors a customer's driving) to reward or penalise drivers, IAG is taking a "carrot" rather than "stick" approach, incentivising drivers with non-insurance rewards – think grocery and fuel vouchers or even charitable donations – that will motivate good driving behaviour. Discounted premiums
Life insurers such as AIA Group have been using sensor data gathered from Fitbits and smart watches to offer members discounted premiums; this may mean they are abe to tap into lower-income or younger markets who have traditionally shied away from insurance due to cost.
Health insurer Medibank Private is in talks with Amazon and Google about how to use data to predict customer's health outcomes.
But IAG, like its competitor QBE, is also taking a deeper dive into data and moving beyond telematics.
In its Singapore insurtech lab Firemark Labs, which opened its doors in 2017, the ASX-listed insurer is researching the data points needed for underwriting autonomous vehicles."It's an emerging trend and technology that could have ramifications on the insurance industry. There is plenty of opportunity that we believe will spawn from the introduction of autonomous vehicles," says Orchard.
"Everyone has a different view of the impact they will have. We're [exploring] introducing different services that could complement the autonomous vehicle manufacturers themselves to be able to add value."
But it's one thing to collect huge amounts of data. Stuckey says it's how that data is ultimately used that will be the biggest differentiator between insurers.
"How do you exploit the most value out of it? How do you draw correlations? How do you bring in additional data to complement the data you have today to make the best decision possible?
"Gone are the days when you have an actuary or a data scientist that is really good at Excel. You do need these artificial intelligence platforms that can help you in that journey because otherwise you can't make any sense of the data.
"Aviation, for example, this is a really rich specialty line in a wide variety of our markets' appetite. A single new jet engine on a Boeing 777 is generating around 16 terabytes of data each year. The volume of that data is something all insurers need to be able to respond to – it's crushing." Funding remains low
But a 2016 PwC report found only 43 per cent of industry players say they have tech at the heart of their corporate strategies and funding for partnering or trialling new technology in Australia remains low. According to CB Insights, insurtech start-ups attracted around $US1.69 billion in 2016, with only 1 per cent of this coming to Australia.
Lobby group Insurtech Australia is pushing the Australian Securities and Investments Commission to open its regulatory sandbox to more insurtech start-ups wanting to test their products with customers.
Brenton Charnley, co-founder of IA, says insurance-related start-ups differ from fintechs in that they often partner up with larger incumbents, with insurers viewing insurtech as helping their businesses rather than disrupting them.
It is start-ups that specialise in AI or analytics, such as Sydney-based Hyper Anna, which created virtual data scientists to answer questions about information in corporate systems, that insurers such as IAG will likely invest in to complement their underwriting business.
Suncorp this year introduced the IBM Watson AI technology to provide rapid liability decisions in our online motor claims system.
"The AI technology automates the claims process to create 'zero-touch' claims, meaning customers' claims can be lodged, excess payments determined and repairs booked in as little as five minutes," says Suncorp chief executive for insurance data Gary Dransfield. Policy wording data
For it's part QBE has a $US50 million ($65.9 million) VC fund that has so far invested in two start-ups – Cytora, an artificial intelligence platform that uses open source data to help commercial insurers lower loss ratios and improve expense ratios, and US-based Risk Genius, a machine-learning platform for analysing policy wording.
"Risk Genius is an example of us trying to exploit policy wording data that we have across all the countries and markets that we operate [and] use that as a competitive advantage," says Stuckey.
He adds that before investing and using Cytora, QBE was avoiding certain risks because of "anecdotal" bad experiences."But the data will tell you today they are actually great risks for us and we can cover them at a very competitive rate and give customers the cover they need to grow their business or buy their home, and we've just ignored them," says Stuckey.
"We are really looking at differentiating our ability to underwrite, price and settle claims in the market, but in reality it's the core of an insurance company's business and that hasn't changed for hundreds of years, we're just trying to do it better."
SFI Price at posting:
7.0¢ Sentiment: Buy Disclosure: Held
