As insurtech enters its next phase, actuaries have an essential role to play-one that blends technical expertise with strategic insight.
By Nancy Mann Jackson
When Charles Zhu worked as an actuarial analyst, he would sometimes spend hours manually developing different models for comparison and selection. Today, as the vice president of actuarial at Olympus Insurance, Zhu works with Akur8, an actuarial modeling platform that makes the model selection process more data driven and less manual.
The technology provides a more streamlined way to build models, Zhu says. “The software makes data-driven decisions that would have taken an analyst much longer,” he says. “Even entry-level analysts can build a good model from scratch. That makes our team more effective and allows us to work faster and better. Most people enjoy making business decisions but do not love manually running model after model to get the information needed to make the best decision.”
Insurtech, short for insurance technology, refers to the use of innovative technology to improve and automate the insurance industry. It includes startups, tools, and platforms that are transforming how insurance is bought, sold, managed, and underwritten. While insurtech is not new, it’s becoming increasingly important to the insurance industry, providing opportunities to create a customer-first approach and maximize efficiency and productivity.
For actuarial professionals, understanding and embracing insurtech’s potential and the value they can bring to the transformation will be crucial for thriving in an increasingly automated future.
The Rise of Insurtech
When insurtech startups came on the scene in the early 2010s, the property and casualty (P&C) market was first to embrace them. Because of the annualized process of P&C insurance, it’s more adaptable to innovation, says Sherry Chan, managing director, insurance and actuarial advisory services at EY.
The health insurance market was next to adopt new technologies. “The health insurance sector has gone through a lot of health equity discussions, which provided a good opportunity for AI to be leveraged,” Chan says.
The life insurance market is making strides but overall has been slower to adopt insurtech. “On the life side, more companies are taking a slow approach because they want to have a clearer understanding of what the regulatory rules of the road will be, ” says Scott Harrison, co-founder of the American InsurTech Council, founder and principal of High Point Strategies, LLC, and Harrison Law Office, PC. “They are avoiding the struggle of developing a really good governance and risk management framework.”
As insurance markets have gradually embraced innovations, the nature of insurtech has evolved. Insurtech 1.0, Zhu says, was focused on leveraging technology to distribute products more effectively. After a decade or more, “it’s now almost table stakes for carriers to have a tech-enabled distribution platform,” he says.
Today, insurtech 2.0 is focused on leveraging technology for process enhancements and efficiency gains overall, including claims, underwriting, and operations, Zhu says. For example, property carriers are using aerial surveillance technology to assess property damage. Machine learning models can quickly predict repair costs using historical data, sensors, and images. Automated selection models can improve the precision of the underwriting process and the efficiency of underwriting teams.
Chan says, “We’re in the infancy stages of seeing possibilities and the realm of everything AI can change. There’s so much unlimited possibility. We’re so early and we don’t even know the possibilities.”
Vast Potential and Implications
As insurtech evolves, practitioners expect it will improve every aspect of the insurance business.
“Most people think of insurtech as underwriting and policy servicing, but there’s a lot that can be done on the back end,” says Arthur da Silva, vice president, Actuarial at Slope Software, an actuarial modeling and analysis software company. “There’s a lot of opportunity that has not been explored yet, like connecting finance and actuarial data to underwriting systems and sales systems without the need to rebuild the logic in a separate system.”
Regulating Insurtech
For all the value insurtech offers, it’s not without risks. For example, a health insurer is facing a federal lawsuit due to its use of an algorithm that automatically rejected 300,000 claims without examining them individually. The algorithm spent 1.2 seconds analyzing each claim, leading to wrongful rejections, according to the lawsuit.
The lawsuit reflects the risk involved in using emerging technologies to streamline insurance business, and regulators are trying to catch up. “The National Association of Insurance Commissioners has been updating regulatory adoption across states. Internationally, there are more regulations on AI and how to ensure models are not causing harm such as unlawful discrimination,” says Arthur da Silva, vice president, Actuarial at Slope Software. “The regulations are evolving quite a lot. And the fact that they’re changing creates some risk, because regulators may restrict the use of these tools for some tasks.”
The regulatory push and pull is expected. As technology rapidly evolves, it creates regulatory gaps, and companies and regulators must navigate these gaps over time, says Joseph Krug, actuarial product manager at State Farm-owned insurtech venture Quanata.
“My core principle for navigating this landscape is always doing the right thing for the customer,” Krug says. “This approach is both ethically sound and pragmatically effective, as it typically aligns with the intent of regulations even when specific rules haven’t caught up with technological capabilities. The most successful insurtech companies will treat regulatory compliance not as a hindrance but as an opportunity to build trust with both consumers and regulators, establishing governance frameworks that demonstrate their commitment to ethical practices beyond minimum requirements.”
One challenge for regulation is that many organizations and leaders in insurtech are new to the insurance business and don’t have an understanding of its regulatory nature. “In the past, everybody operating in this space was already part of the insurance ecosystem, but when it comes to insurtech, that’s not the case,” says Scott Harrison, co-founder of the American InsurTech Council (AITC). “Some of the most important players are data scientists or other professionals who know little about insurance regulation. In order to get to common sense regulatory frameworks, we need to educate and bring along the tech people, so they have a better understanding of what our needs are.”
For example, several years ago, one of Harrison’s insurance company clients was negotiating a contract with an outside vendor. The insurance company asked the vendor if they would be using any form of AI or predictive analytics and the vendor refused to answer, claiming it was proprietary information. “The vendor had no concept of the responsibilities of their intended customer as a regulated company,” Harrison says.
One focus of AITC is helping the third-party vendors understand what it means to do business with a highly regulated industry. Insurance companies can help by explaining to potential vendors their regulatory requirements and asking if the vendor is willing to cooperate with regulators. “It helps educate the vendors about the expectations of doing business in the insurance market,” Harrison says. “Over time, the vendor world will become a much more efficient partner in solving some of these issues.”
For example, software platforms that seamlessly integrate finance, underwriting, and other teams can boost collaboration and insights across an insurance organization. “I’ve talked to underwriters who say if they had access to more profitability figures in the underwriting process, that could make them do their jobs better,” da Silva says. “They want to use as much information as possible when making their decisions, not just mortality risk but also financials and profitability.”
Insurtech is expected to drive some specific shifts in the future, including:
- Harnessing data for personalization.
“Data are the new oil of the economy, and life insurance companies are data-rich,” Chan says. By using new technologies to convert, normalize, and leverage the data, insurance companies can use it to predict what products policyholders want to buy, for example.
In addition, life insurance companies can leverage wearables to provide a more complete data picture than a single point in time like a medical checkup, helping to speed the underwriting process, Chan adds. Wearables “can also help with claims prevention, such as detecting changes in behavior of an elderly person, allowing certain interventions and help to be introduced sooner, when it’s most critical,” she says.
Overcoming Hesitancy
Technology is now available to streamline almost every aspect of the insurance business, but many insurance companies and markets remain hesitant to embrace innovations.
For many, the reluctance depends on the use case. For example, using insurtech for underwriting decisions is high risk, but using it to select prospects for marketing is lower risk, says Arthur da Silva, VP, actuarial at Slope Software, an actuarial modeling and analysis software company.
Another reason for hesitancy is the decision of whether to build their own tech solution or partner with a third-party vendor. “A lot of carriers are dealing with the build vs. buy decision,” says Charles Zhu, vice president of actuarial at Olympus Insurance. “We went with the buy model because we needed something fast to add value to the organization.”
Some legacy insurance companies are investing in building their own solutions, which may take more time but allows them to own the technologies. For example, Quanata, a State Farm-owned insurtech venture, has developed products such as a mobile-based telematics program that offers drivers up to 50% discounts based on their daily driving decisions.
For legacy insurance companies that are struggling to embrace technological change, “having conversations is the first step,” says Sherry Chan, managing director, insurance and actuarial advisory services, EY. “Be open to seeing demos, come to the table to discuss possibilities, and offer your perspective. You don’t have to make a commitment, but it gives you a glimpse of the potential and provides you an opportunity to be a part of building something through your feedback.”
2. Increasing market segmentation.
“The ability to segment is becoming more available via the ubiquity of data,” says David McFarland, founder and CEO of Cincinnati-based Coterie Insurance, which focuses on micro-commercial policies under $2,500. “That allows companies more ability to compete in loss ratio.”
For example, in the past, it was difficult for companies
to compete on pet insurance because the average premiums
were too small, McFarland says. Now, the pet insurance space
is exploding.
As a result of segmentation, McFarland predicts traditional markets will become more commoditized and more new markets will open or expand, such as cyber insurance, front end carrier markets, E&S (express and surplus) market, and the micro commercial market.
3. Improving customer experience.
Evolving technologies will make it increasingly easier to build a more customer-focused experience.
“It’s about meeting customers where they are through multiple binding options, from traditional agency to direct-to-consumer, prefilling applications with aggregator platform data, offering telematics-based discount programs, and creating cohesive digital experiences,” says Joseph Krug, actuarial product manager at Quanata, a State Farm-owned insurtech company.
Customer expectations have evolved significantly due to the impact of technology in everyday life, he says. “A seamless customer experience is no longer merely a differentiator but a fundamental expectation. Companies that successfully create modern, digital-first experiences are well positioned to acquire, retain, and renew their portfolios at profitability levels exceeding expectations.”
The Role of Actuaries
As insurance transforms from a traditional legacy industry to a fast-paced, tech-enabled one, insurtech experts say the industry will need people with actuarial skills and an openness to change.
For example, at Coterie, the insurtech startup focused on micro-commercial policies, 100% of underwriting is handled digitally. However, the company still employs actuaries in roles such as portfolio analysis, and data infrastructure and architecture. “Actuaries know how insurance works, and their input on how the data should be structured is instrumental in building an insurance company,” says McFarland. “You don’t have to have the title actuary; just bring your education and skills that can inform products. Certain jobs might be eliminated, but that doesn’t mean the skill set will not be needed.”
Actuaries bring not only a deep understanding of the insurance ecosystem, but they also bring agreed-upon professional ethics and standards. As insurtech innovations evolve, “we need to attach insurtech to a discussion that has well-developed and articulated professional standards,” says American InsurTech Council’s Harrison. “Everyone understands the role actuaries play and their overarching professional standards. We need to bring the use of AI and technology under those same professional standards.”
At one time, mortality tables were considered innovative, and actuarial standards had to be developed to govern their use, Harrison says. Over time, he predicts the market also will force the development of standards for the use of AI and data science. “We need to create an environment where that can happen,” Harrison says. “Actuaries should view this as an opportunity, not a threat.”
Through their training, experience, and certification, actuaries develop skills of strategic thinking and decision-making-and those skills are vital for a technology-driven future. “Actuaries are in a good position to leverage the possibilities of AI because they see the whole value chain,” Chan says. “Whatever comes out of generative AI, we still need a high-level understanding of whether it makes sense and how to put it to use. AI will allow actuaries to replace mundane, time-consuming work and free them to do more strategic work.”
Preparing for a Changing Future
Actuaries and insurance leaders can focus on sharpening their skills and preparing to overcome new challenges.
The first step to preparing for a tech-enabled future is to accept that the industry is evolving and be open to change. At a conference in 2024, Coterie’s McFarland heard a speaker from a large company advising attendees not to worry about AI because “‘no one has really figured it out, it’s very early, and it’s all going to be fine.’ But that’s not true. There are lots of companies making huge strides with generative AI and automation. Don’t go in with the mentality of complacency, assuming you’ll be fine. Companies need to be figuring it out and experimenting with it.”
Some of the biggest challenges presented by the evolving insurtech landscape include data accuracy, security, and privacy. “There will always be a need for expertise in navigating the complexities of insurance,” Krug says. “The most successful outcomes occur when insurance expertise is paired with technical expertise, creating a synergistic relationship where actuaries provide the critical business context that data scientists sometimes lack.”
Actuaries can make themselves more valuable by developing three essential skills:
- Interpreting technical innovations through a lens of business strategy. “By understanding both the capabilities of new technologies and the fundamental principles of insurance risk, actuaries can guide organizations in implementing AI and advanced analytics in ways that create genuine business value rather than just technological novelty,” Krug says.
- Embracing interdisciplinary collaboration as a core competency. The work that makes the biggest impact occurs “at the intersection of actuarial science, data science, underwriting, and customer experience,” Krug says. “Actuaries who can facilitate these cross-functional partnerships and integrate diverse perspectives will be particularly valuable.”
- Building a range of skills. Focus on becoming an expert in actuarial science, but also build other tangential skills and knowledge. “Having a range helps you to become fairly dynamic,” McFarland says. “When you have the ability to dip into pricing and data structure, you have more to offer. Nobody has security; life is going to continue to throw curveballs. Having a range can help you be prepared.”
As traditional insurance professionals continue learning and growing with the industry, opportunities for growth, new responsibilities, and increased efficiencies will continue to arise. Actuaries, who are skilled at managing risk and applying those skills with professional standards that guide their work, may be especially crucial for determining the right circumstances for using new technologies, where the process might break down, and how to avoid potential pitfalls. Insurtech is driving an evolution in the insurance industry, and actuaries can help steer the ship in the right directions.
Nancy Mann Jackson is a freelance writer for Contingencies.