Contributed By Matheson (Dublin - HQ)
Government bodies such as Enterprise Ireland (EI) and the Industrial Development Authority Ireland (IDA), which work in tandem to attract and support foreign direct investment in Ireland, have recently been promoting Ireland as an excellent destination for companies in the Insurtech industry, as there are many advantages to locating here. Ireland is the world’s second largest exporter of software, and 105,000 educated, skilled and multilingual employees work in the technology sector. Over 212,000 members of the Irish workforce work in digitally-intensive sectors.
Eleven of the top 15 global insurers are located in Ireland. The Irish Government invests EUR700 million annually in research and development in strategic areas such as software, data analytics, machine learning and cyber security.
InsurTech offers those operating within Ireland’s domestic and international insurance industry the possibility to take advantage of new and emerging opportunities. Historically, it has received markedly less attention and investment in comparison to Fintech; for example, in 2015 InsurTech received EUR2.6 billion in investment compared to some EUR20 billion for Fintech. Despite this, InsurTech provides insurers the opportunity to innovate and grow by providing increasingly sophisticated methods to engage and serve customers in a unique and distinctive fashion. There were 66 InsurTech investment deals reordered in the first quarter of 2018, seven of which were valued at over EUR30 million. It is notable that the average value of deals has increased, showing that investors are becoming more inclined to invest in more established companies targeting aggressive expansion.
The EI and IDA are calling for InsurTech start-ups to receive funding as part of the government’s financial strategy, the IFS2020. This strategy seeks to accelerate the growth of high potential companies with a focus in areas of InsurTech such as blockchain, the internet of things (IoT) and data analysis. At present, there are approximately 120 indigenous Fintech companies in Ireland, and many insurers such as AXA and Allianz have entered into industry carrier-start-up partnerships. These start-ups leverage technologies in a manner that delivers personalised and unique policies tailored to the consumer. Artificial intelligence, IoT and analytics are the three chief InsurTech areas driving the disruption, with the number of deals pertaining to this trio of technologies tripling between 2012 and 2016. Collectively they accounted for nearly 56% of all 2016 InsurTech deals. These technologies have the potential to compress the insurance value chain or better equip insurers, reinsurers and brokers by more efficiently identifying and quantifying risk through the use of increasing sophisticated data models.
With the large number of diverse domestic and global InsurTech companies (it is estimated that there may be 1,500 InsurTech companies worldwide), insurers are quickly beginning to understand that InsurTech technology is compatible with industry processes and can complement their books of business. Innovative IoT technology and the proliferation of smart devices have allowed insurers to delineate risk more accurately by relying on new real-time sources of information.
The growing presence of InsurTech in the insurance industry looks set to continue, with global InsurTech investment in the first six months of 2018 amounting to over 85% of 2017’s total funding. The European Insurance and Occupational Pensions Authority has organised a series of InsurTech roundtable talks, which further highlights the importance and emphasis being placed on InsurTech. Domestically, the future of InsurTech looks bright as Insurance Ireland, the organisation representing 95% of Ireland’s domestic market, is currently liaising with Massachusetts Institute of Technology to examine innovative new approaches to blockchain technology as well as forming part of the IDA Blockchain Expert Group.
At a European level, EIOPA has developed an InsurTech Task Force (ITF) with responsibility for the implementation of EIOPA’s core digitalisation activities, in order to establish efficient and effective supervisory practices. The ITF will play a part in the convergence on supervision of algorithms and will also explore the benefits and risks that arise from the use of blockchain and smart contracts for (re)insurance and consumers.
In Ireland, the Central Bank is responsive to the challenges posed by the regulatory treatment of financial innovations, and enjoys a reputation as a robust yet business-friendly regulator. The Central Bank acknowledges the need to strike the appropriate balance between encouraging innovation-related entry to the market and ensuring that new entrants are sufficiently ready to fulfil all their regulatory obligations in relation to financial stability and consumer protection. It is cognisant of the requirement to keep abreast of the changing technological environment and has committed significant resources to improving its data architectures and establishing quantitative analytical teams in its banking, insurance and markets directorates.
In addition to these favourable domestic conditions, insurTech collaborations and start-ups have an opportunity to flourish in Ireland as it is unlikely they will be hindered by excessive regulation. Philip Lane, the Governor of the Central Bank, has acknowledged that insurTech is transforming into a significant part of the financial system, and is “open-minded” about extending regulations to it. This openness and willingness to engage with fintech and insurTech start-ups is not unique to the Governor of the Central Bank, with past Director of Enforcement, Peter Oakes, founding Fintech Ireland to promote Ireland as a hub for fintech companies.
The Central Bank issued guidance relating to IT and cyber-security risks in 2016, which highlighted a variety of emerging threats. In addition to the recent prolific hackings and ransomware attacks, the Central Bank also drew attention to deficiencies regarding IT outsourcing and IT governance.