Regarding InsurTech from a ‘them’ and ‘us’ standpoint increasingly misses the point.
It’s understandable that many insurers have perceived InsurTech as a threat to the value chain. Yet the biggest threat lies not in technology itself, but in competitors of any description leveraging these technological innovations to gain an advantage by reducing risk and lowering costs.
The plain fact is that the vast majority of InsurTech companies aren’t interested in going to war with incumbents. Their focus is on creating value within the insurance value chain – not collapsing it. So if incumbents embrace ‘disruption’, rather than concentrating on defending themselves by keeping these opportunities at arm’s length, then they will find that the available technology is largely complementary to most of the current processes in the industry.
The most successful insurers and reinsurers tend to be able to connect the industry ‘holy trinity’:
- Proximity to clients
- Access to the lowest average cost of capital across the business cycle
- The ability to gain tangible advantage, optimising all forms and sources of information
Technology in general, specifically InsurTech, has the potential to collapse large swathes of the value chain, and will change all three of the above. This isn’t news, but modern technology, such as machine learning and the application of big data, has accelerated change on an unprecedented scale in terms of speed, cost and product transparency. The good news is that there is every chance that insurers that stay close to the changes can adapt without sacrificing their historic book of business. They can help shake things up without experiencing an earthquake in their own bottom line.
MatureTech meets InsurTech
There are approximately 1,500 recognised InsurTech companies operating globally right now, so although keeping up with all the new technological capabilities can be overwhelming, judicious investment here seems set to pay off in the long term. In fact, it looks unavoidable in order to compete in this brave new world.
Willis Re aligns InsurTech clients and prospects with five distinct value chain categories, based on whether the primary focus is on:
- Structural innovation
In each, there is demonstrable evidence of changes. For example, smartphone apps enable businesses to get closer to their customers, thereby improving the customer experience and improving client proximity, one of the ‘holy trinity’.
In the data/analytics space, real-time data will, eventually, replace the industry’s accumulated proxy data. Incumbents may need to prepare by engaging with InsurTech companies to form strategic partnerships that will enable them to access improved pricing and reduce the cost of claims: a case of ‘MatureTech meets InsurTech’. This should improve the claims experience for consumers (which, of course, is invariably the only stage at which an insurer will spend considerable time communicating with a policyholder), drive costs down, tackle fraud and improve customer retention rates.
Such developments show how InsurTech businesses can profoundly complement Insurers’ success drivers and fortify core competencies. And this is a trend we see going in only one direction, given the increasing number of partnerships that are being struck between old and new.
So, whether you’re a start-up with new ideas or an incumbent concerned about protecting your book of business, the greatest risk you can take may be to resist collaboration.