The insurtech sector is one of the fastest growing sub-divisions of the fintech movement. Indeed since 2012, insurtechs have attracted $2.5 billion in early stage capital and there are over 250 companies in the general insurance segment alone.
The boom in insurtechs started three years ago. The popular image is of the insurtechs who are out to disrupt the established insurance market with digital products that cut out traditional insurers and brokers.
Like their bigger brothers in banking fintech, disruption was the insurtechs’ original mantra.
However, there is a dawning reality that scaling up an insurtech start-up, or unicorn, to compete for customers on a massive scale is super difficult. There are some immovable obstacles to be dealt with. Regardless of how digital and agile an insurtech believes it is, there are legal and regulatory hurdles that are hard to overcome. To move ahead in 2019, insurtechs need strategies to deal with these.
Some of the most disruptive insurtechs are those who seek to seize customers from traditional insurers. You could term these as digital attackers and several of these will survive. It is notable that these challenger, independent digital insurers are installing traditional insurance industry veterans to lead their operations for next year. These are exactly the right guys to get over the regulatory hurdles.
The main development in the insurtech sector will be how insurtechs make serious efforts to be more attractive, not disruptive, to the insurance establishment. Insurtechs are realising that collaboration with the establishment is critical to their success because traditional insurers have done the hard work on customer acquisition, statutory capital, and regulatory compliance. And what is more, the establishment insurance companies are in the market for insurtech innovation.
Successful insurtechs will be those who fit into different parts of the insurance customer lifecycle. These can be categorised as process improvers who can make existing processes, like risk analysis or claims assessments, more efficient, or how they can evolve existing products like motor with vehicle telematics or property with IoT.
Great examples of these are FRISS and Octo Telematics. A European insurtech, FRISS is one of the most successful providers of fraud detection solutions with over 150 implementations in 25 countries. These implementations include the flagging of potential fraud during underwriting and claims management using machine-learning and other techniques. Octo Telematics, one of the largest global telematics companies, automates the First Notice of Loss (FNOL) process for motor physical damage claims and can digitally reconstruct the dynamics of a crash with their telematics data for a claims adjuster to evaluate. Octo has telematics data on over 200 billion miles driven.
Do not expect disruptive insurtech offerings to fade in 2019. Many will keep on inventing new insurance products that may be positioned as disruptive (for example, pay as you go motor insurance or insurance for the gig economy). Nonetheless, insurtechs will be most likely to succeed if they have the backing of an established business that is typically a traditional insurer or reinsurer.
As insurtechs look for ways to survive and thrive, they find they need to connect with insurers’ systems, underlining the importance of software platforms that are widely adopted in the industry. These offer the best way for insurtechs to interconnect with insurers. 2019 will see even more enthusiasm for insurance platforms, many of which exist in the cloud.
By offering products that operate on the same platform as the insurer, insurtechs remove the obstacle to new technology adoption and realize value more quickly. No matter how easy an insurtech app is to use, if it requires staff training on a new user interface, there is a significant barrier to its success. This difficulty can be avoided if the app’s capabilities can be accessed and employed within the insurer’s familiar systems dashboard.
While insurance has been shaken up by the advent of insurtech, there have been persistent rumours in trade press about the Big Tech boys – Amazon, Google, and others – entering and disrupting the market more decisively than an array of plucky insurtech start-ups. Some limited ingress by Big Techs has begun and should be expected to continue.
The pattern will be for insurers to both repel and embrace Big Techs. It has been entirely sensible for insurers to evaluate an Amazon aggregator service or other parts of their offering – for example Travelers partnership with Amazon on smart home in 2018. This trend is going to pick up over the next 12 months or more.
However, in entering partnerships insurers hold a strong not a weak card. Big Techs who want to offer insurance services must overcome regulatory barriers that insurers understand. It is worth mentioning that Big Techs, like Amazon, Google and Facebook, do not exactly have an unsullied reputation in data or regulatory compliance.
This does not mean insurers should hesitate to fight back in 2019. They need to both understand better how Amazon and the other tech giants operate; and realise their own innate strengths to repulse the attack on their market. The key developments to watch out for will be how insurers invest in innovative ways to maximise and leverage the data they already have about risks and customers, and how they create the effortless interfaces that customers want. The latter will seen in what way insurers learn the lessons of digital experience that is intuitive, uncomplicated and always aimed at saving the customer time and energy. Look at how the Google search page works for a hallmark of computing power rendered with awesome simplicity.