The Data-Driven Revolution Is Happening Now

Jon Soberg, Managing Partner, Ms&Ad Ventures

For years, people have been talking about the promise of “Big Data” and “AI” and the huge opportunities that exist. As a VC for over a decade and focusing on the financial industry even before the terms “FinTech” and “InsurTech” existed, I’ve watched the evolution of platforms and data carefully. I’ve seen waves of innovation dramatically change industries.

Ten years ago, nearly every unsecured consumer loan was underwritten and funded by a bank or a small lender, usually with paper and in-person. Fast forward to today, and 70% of consumer loans are made by technology platforms online, with varied funding sources. These platforms have changed the game because they look at everything when they underwrite and have advantages that traditional lenders can’t touch. Most people wouldn’t expect that the way a loan application is typed into a form is correlated to defaults, but the technology platforms know because they use tens to hundreds of thousands of data points to underwrite loans, usually in seconds.

This is happening with insurance now. The InsurTech wave started a little later than the lending wave, and it is taking a little longer to scale up because of regulation and because customers don’t change insurance as easily as they change some other financial products. However, the InsurTech wave is now getting into the steep part of the S-curve of growth, and the next few years will see immense change. This is being driven now by data, AI and automation.

Insurance has always been a data industry. Actuaries have used advanced models for decades, and claims data is a gold mine for insurers. However, today’s AI models are using orders of magnitude more data and they have inherent advantages that old models simply won’t be able to match. The most obvious area that people think about data is underwriting where AI prediction engines have the ability to learn patterns rather than rely on statistical projection. In a world where every year seems to bring new weather catastrophes, political turmoil and this year a pandemic, the best way to deal with these risks is to gather and leverage as much relevant data as possible to make good predictions and to enable risk mitigating steps.

But the data is not just for underwriting or for predicting risk. The data-driven revolution uses data holistically from marketing and sales, to product design, underwriting, claims, and ongoing support. InsurTech companies don’t think about insurance in traditional ways. They are using data and integrating it through the entire lifecycle from a customer-centric .

As an example, we are an investor in Next Insurance, and Next has tailored their small business insurance to different industries. The insurance needs and risks for a carpenter are different from a personal trainer, and now a personal trainer during COVID-19 looks totally different than it did in 2019. The AI models can adapt in real time. Next’s systems can automatically adjust their products and file for regulatory approval in all 50 states without human intervention on a daily or weekly basis. When you consider the number of products, the number of industries and 50 states, Next’s systems are literally managing thousands of products automatically using data to drive everything. This is what the data-driven revolution looks like, and it is moving so quickly that those not acting now risk being left behind.