Insurtech: Competitors or Collaborators?
Just as Fintechs have disrupted the financial industry in recent years, Insurtechs are now making a very visible impact on the insurance market. Grappling with these new companies is vital to the survival of existing, traditional insurance providers. One survey suggests that as many as 74% of incumbent insurance companies accept that Insurtechs are a challenge to them. In spite of this, only 28% are looking at the possibility of partnering with these new companies, and less than 14% are involved in Insurtech programs.[i]
These are worrying statistics, as a refusal to engage with these emerging technologies could spell the end for traditional incumbents. However, with foresight and a willingness to change, insurance companies can benefit from the products and services of Insurtechs, utilising them to complement, promote and extend the services that they already provide. Working with these companies is a way to not only survive the disruption caused by the rise of Insurtechs; but to grow and develop through strategic collaborations. Insurtech companies provide innovative products that are able to improve on every part of the value chain within the insurance sector. Insurtech can also help to identify and then market to gaps in the insurance market, opening up revenue streams that were not previously available.
McKinsey Panorama conducted an analysis of Insurtechs, using their own database which holds records on over 500 Insurtech companies. They suggest that 37% of Insurtechs are involved with the distribution of insurance, with 75% of these having a specific emphasis on the enabling of distribution; such as allowing easy access and simple comparison of products for consumers.[ii]
This allows existing companies to promote their products and services in a marketplace that they may not otherwise have had access to. There is opportunity for companies that are smaller or that offer unusual or different policies, to compete against larger, well-known names.
Insurtech can also aid in making insurance more accessible and easier to sell. Cover Genius uses underwriters that include many of the world’s leading insurance providers, to allow e-commerce firms, such as Booking.com to sell insurance.[iii]
· Engaging with customers
McKinsey & co suggest that customer engagement is the most valuable addition that Insurtechs bring to the Insurance market.[iv] Using technology, Insurtechs can provide more regular client contact, without the need for large staff increases. They can also ease processes such as complaints and claims, making them simpler and more streamlined – thus improving the company reputation and increasing customer retention.
· Risk Analysis and Risk Minimisation
Fintechs offer a variety of ways to assist with the analysis of risk, allowing underwriters to create more client specific products. Companies such as Cytora use AI to analyse risk using a plethora of data, helping underwriters to make swifter, more accurate decisions.[v]
As well as predicting risk, technology can help to minimise risk; for example, by using technology to alert home owners or police of break-ins as they are happening. Car drivers can have monitoring devices fitted to their car, reducing insurance costs for careful drivers. Life insurance can be catered to the health of the individual, with devices monitoring current health, as well as the amount of activity that a person does. Using this technology, insurers can offer clients competitive, very client-centric services and products. It also means that there are fewer incidents of loss; a benefit both to the client and the insurance company.
· Innovative products
Technology within the sector can create innovative insurance products that are extremely individualised and quick and easy to use; for example, via mobile phone apps. By Miles is a unique company, allowing clients to purchase car insurance using a “pay by the mile” model. A telematics device attached to the car tracks mileage, giving an immediate cost for the insurance of each journey, with details easily accessed using the By Miles app.[vi] Collaborating with (and investing in) this type of small, technologically driven company, can allow larger insurance companies to capitalise on this kind of innovative model. These products can complement the more complex insurance policies that need to be made by experienced underwriters.
· Organisation and processes
Applied is one example of an Insurtech giant, used by multiple insurance companies to ease administrative tasks, movement of data, data storage and management, meaning that tasks that used to be laborious and time consuming, can be achieved automatically in seconds.[vii] Anything that saves time will save a company large amounts of money, as well as decreasing frustration for clients and advisors.
· Profitable ideas
The nature of small start-up Insurtech companies, means that they are naturally more able to try out innovative ideas. They don’t require large teams of staff and are not bound by systems that are already in place and that may impede quick decision making. The Fintech 100 includes numerous profitable companies with under 10 employees. McKinsey points out that these simpler platforms mean that investments into new projects are less costly, with swifter results.[viii]
For large incumbent insurance agencies, investing in experimental Insurtech projects could be very profitable, seeing the potential for relatively small investments to pay out handsomely in terms of business growth.
A new way
The real message to incumbent insurance companies is that the rise of Insurtech is not the end; rather, it is an opportunity for further business growth and development. McKinsey found that 61% of Insurtechs are intent on offering services that can help traditional insurance companies to improve.[ix] Having identified flaws in aspects of the value chain, Insurtechs seek to improve on these areas by using technology to offer better products and service – a benefit both for clients and their insurers.
[i] PWC. 2016. Opportunities Await: How Insurtech is reshaping Insurance. [Online]. [29 March 2019]. Available from: https://www.pwc.com/gx/en/industries/financial-services/fintech-survey/insurtech.html
[ii] Mckinsey and company. 2017. Insurtech - The Threat that Inspires. [Online]. [28 March 2019]. Available from: https://www.mckinsey.com/industries/financial-services/our-insights/insurtech-the-threat-that-inspires?reload
[iv] Mckinsey and company. 2017. Insurtech - The Threat that Inspires. [Online]. [28 March 2019]. Available from: https://www.mckinsey.com/industries/financial-services/our-insights/insurtech-the-threat-that-inspires?reload
[vi] Fintech global, (2018). InsurTech 100 Profiles: FinTech Global. Page 11.
[vii] Fintech global, (2018). InsurTech 100 Profiles: FinTech Global. Page 6.
[viii] Mckinsey and company. 2017. Insurtech - The Threat that Inspires. [Online]. [28 March 2019]. Available from: https://www.mckinsey.com/industries/financial-services/our-insights/insurtech-the-threat-that-inspires?reload
[ix]Mckinsey and company. 2017. Insurtech - The Threat that Inspires. [Online]. [28 March 2019]. Available from: https://www.mckinsey.com/industries/financial-services/our-insights/insurtech-the-threat-that-inspires?reload