By Mark Colonnese, Director at Aquarium Software
Recent data from KPMG shows that investment in UK fintech companies has reached a record high, with firms attracting $24.5 billion in the first half of 2021, along with the highest volume of deals on record. UK investment climbed in the first six months of 2021 to four times the $5.9bn invested during the whole of 2020 and the UK also attracted significantly more investment than all the countries in the rest of EMEA combined.
The UK is not alone in seeing record fintech investment, as global investment in fintech hit record levels in the first half of 2021, with a total of $98bn investment from around 2,500 deals, according to KPMG’s recent Pulse of fintech report. The sector saw strong investment across private equity and venture capital, with corporates trying to increase their own digital transformations investing heavily in fintech companies.
Covid driving the digital switch
Covid has accelerated the race to digital in UK financial services. Fintech companies are now attracting investment from major banks using investment pots for digitalisation. Many banks recognise they do not have the means to achieve digital innovation directly so need to invest in or acquire these capabilities. According to KMPG’s report, “Large funding rounds, high valuations and successful exits underscore the thesis that digital engagement of customers that accelerated during the pandemic is here to stay.”
Digitisation in the UK insurance industry is helping drive UK fintech investment, as insurance companies that had been slow to react initially have now begun to adopt digital platforms to drive efficiency and profitability. Insurance is a complex business based on large volumes of data and complex risk analysis. Developing semi or fully automated insurtech systems has started to take off thanks to huge advances in AI technologies that are now able to have a wide range of data analysis uses on the latest digital insurance platforms.
Automated insurtech that uses AI and machine learning (ML) can help substantially reduce the costs incurred in the manual administration of policies from sales, renewals to claims. For instance, insurers are using technologies like AI and ML for claims management to replace traditional labour-intensive processes, while delivering better customer experiences.
Utilising AI and ML
AI-based platforms are now more reliable as they have developed over time to more accurately mimic human thought processes. ML, where software automatically learns from data analysis and improves its sophistication over time, helps drive continuous improvement. These technologies can make decisions much faster than people could, which improves the speed and accuracy at which claims can be settled or policy quotes issued.
Using AI and ML allows insurers to settle all but the most complex claims within seconds through an automated process, with no need for human input. AI enables insurers to even assess claims that fall outside standard parameters with a few clicks of a button instead of time-consuming paperwork. The result is that the end customer gets a quicker and easier experience, as their insurance claims are paid automatically within seconds.
Huge growth potential in insurtech
Overall, implementing digital technologies like these gives greater operational efficiency for insurers, resulting in lower policy premiums for the customer – a significant competitive edge in a fiercely competitive marketplace. This in turn makes insurers with the right insurtech more attractive to investors that are seeking to capitalise on the attractive long-term opportunities in the UK’s insurance markets, particularly pet insurance.
The pet insurance sector is a centre for digital innovation and is already using technologies that are transforming how insurance is delivered. In the UK, roughly 25-30 per cent of pet owners currently hold pet insurance policies so there is huge growth potential in this market. This means there is going to be continued demand for pet insurtech applications and platforms as more companies seek to capitalise on the attractive long-term market opportunities.
There is plenty of room for innovation in insuretech as pet insurance is a high growth and potentially profitable product. If the service is right, customers retain policies for many years. The potential profitability of the pet insurance market is now attracting a record number of policy providers and helping drive record UK fintech investment.
As no insurer or customer is the same, in future sophisticated data analysis will enable more innovation and customisation that will address pain points for customers and keep changing the traditional insurance experience. Better digital engagement of customers will continue to be at the heart of the industry’s growth for the foreseeable future.
About the author: Mark Colonnese is a Director of Aquarium Software, the software platform for fast, profitable growth in insurance markets – especially pet insurance