Insurance companies have increasingly looked at technological innovation as both an opportunity to increase profit margins, and as a potential disruptive force in the industry, with some insurance executives estimating that one third of their operations may be lost to FinTech. On-demand insurance that allows a consumer to purchase insurance on an as-needed basis has started to enter the marketplace. Despite market disruptions, there are a lot of opportunities for traditional insurance providers to take advantage of technological advancements

In today’s data driven world, insurance companies can use data analysis to improve operational efficiency. There is also an opportunity for insurance companies to integrate the use of wearable fitness devices or fitness apps into their policies to better predict the health of the insured individual and increase sales opportunities. In the United States, the Food and Drug Administration reported that by 2018, approximately 1.7 billion smartphone users around the world will be using a medical mobile app. This creates increasing opportunities for insurance companies to connect with customers and improve insurance premium calculations using health data collected by the mobile app.

Market trends in 2017

In the 2016 PwC report Opportunities Await: How InsurTech is Reshaping Insurance, 43% of insurance industry participants claimed that FinTech is central to their corporate strategies, however, less than 30% looked at partnerships with FinTech companies. Despite the reluctance of industry participants, 2016 saw a global investment and M&A deal volume totalling $12.1 billion, according to KPMG’s  report, The Pulse of Fintech Q2 2017. While in 2017, there has been a decline in deal value, industry trends, such as consolidation, has seen the number of deals keep pace with 2016. Even though deal value has been much lower in 2017 so far, KPMG expects larger value deals in the coming year, as InsureTech start-up companies begin to mature. So far, there have been with 155 deals closed this year, with a combined value of $2 billion.

There has also been an increasing trend of business-to-business InsureTech providers, with many early-stage companies moving away from focusing on end consumers. Instead, many start-ups are looking to create a partnership with existing market participants, allowing traditional insurance companies to improve their digital capabilities. Artificial intelligence is also becoming an increasing presence in traditional insurance companies. In January of 2017, a Japanese insurance firm replaced over 30 of their workers with artificial intelligence technology, allowing the insurance company to dramatically decrease the time needed to calculate payouts by automating data analytics. Investment and acquisition of artificial intelligence technology is likely to increase in the coming years as insurance companies move towards automation of insurance claims procedures.

The author would like to thank Olga Lenova, Articling Student, for her assistance in preparing this legal update.

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