Five insurance experts discuss whether new tech startups have shifted their focus from competing with incumbent insurance companies to collaborating with them.
Andrew Johnston, global head of insurtech, Willis Re
“In the middle of 2017, the narrative around disruption in the wholesale business began to shift, partly as a result of consumers talking to insurtechs personally rather than just reading the news and dreading the worst. They began to interact with them and rapidly realised that rather than disrupting, they could enhance, enrich, enable, and work with them. This was fueled by the realisation that going head-to-head with the incumbent industry was incredibly challenging, both in terms of customer acquisition and regulatory compliance, as well as capacity requirements.
There were a number of variables that swiftly put an end to the disruption discussion.
“The only genuine disruption that persists in a visible way is traditional competitors’ capacity to better employ technology against one another. “Does Google want to have to work with local regulators, spending literally months, if not years, proving the data it is getting on consumers is not then being used in a morally hazardous way if it is then to sell insurance?” he asks.
Mark Cunningham, chief executive and co-founder, WhenFresh
“From Apple to Amazon, breakthrough technical innovation has made life faster, simpler, and easier for customers all across the world. While the global insurance industry has plenty of cash on hand, it has been horribly inefficient and slow to grow in comparison. There was a lot of talk about disruption in the early days of insurtech, and there’s no doubt that the insurance business is ready for it. However, the conversation is shifting, as actual disruption in a highly regulated market like insurance, which requires a considerable amount of capital, is difficult.
“With the exception of insurers, only major, global technology companies and larger venture capital firms have deep enough pockets to cause meaningful disruption in the insurance industry. However, money is still pouring into insurtech startups, with a reported $3 billion in new investments in the first half of 2019. Nonetheless, given the high barriers to becoming a full stack insurer, many insurtechs seeking to disrupt have viewed the MGA path as a more convenient method to enter the market than forming an insurance firm from the ground up.
“Insurtechs like Wrisk and Laka are creating novel new insurance models, but it’s not easy, therefore the bulk of insurtechs, in my opinion, will pursue a collaborative partnership-based approach to address issues like big data analytics, distribution costs, claims management, and pricing. These are some of the most significant problems that incumbent insurers confront in their value chain, making insurtechs in this field particularly appealing as partners.
“The Lloyd’s Lab, Rainmaking InsurTech, XL Innovate, Allianz X, and QBE Ventures, which are all active in the market and have been formed by, or have the backing of, incumbent players to ensure they are in the mix and leading the sector’s innovation, are all examples of insurers embracing insurtechs to support their own future development. Collaboration will be the way of the future.”
Zach Powell, managing director, AXIS Digital Ventures
“The market is seeing increasing chances to work with insurtechs, particularly in terms of distribution and analytics. This implies insurers may change their strategies, potentially disrupting the market in the short term, but ultimately giving more value to customers. Some argue that this type of development jeopardises the broker’s job, whereas AXIS values a broker-driven market and believes that brokers are still needed and required for marketplace access and product knowledge.
“In the meantime, insurers have worked hard to develop their digital capabilities, allowing them to collaborate directly with insurtechs. This is critical, as it will enable them to collaborate more effectively with the insurtech industry in the long run. Data is a strong instrument that can assist us in better understanding our customers’ shifting needs. Insurtechs can often supply data points that can help an insurer better inform its decision-making process, help an insurer underwrite more effectively, and give end insurers with as much information and transparency as possible to make the decision.”
Chris Butcher, chief executive, intermediary services, at Davies Group
“I still believe there is a potential for big tech businesses to enter the insurance business, primarily because their comprehensive grasp of human behaviours and purchasing habits grows over time, while the business does not. It’s moving in the right direction, but we don’t have the means or willingness to invest in technology and innovation in the same way that the major tech businesses do. A lot of it boils down to the amount of money you have on hand.
“Some insurers have incubating accelerating garages, but they’ve practically outlived their usefulness, and they’re considerably less important anymore. There’s a lot of filtering going on here. But that’s just a carve-up of the existing insurance industry; it ignores the fact that innovation is required, as well as the necessity to invest in an R&D mindset. I’m not seeing the level of participation I’d like, and it’s gotten significantly worse as the early enthusiasm has faded.
“Many carriers’ underwriting outcomes aren’t great, so they’re fine-tuning their underwriting procedures. They’re having a hard time allocating funds to try out insurtech in that environment. It’s not going to happen, and we’re down to a tiny number of reinsurance players who are willing to take a chance. Non-insurance entities, in my experience, are more inclined to investigate this sector and see if typical insurance capacity can be used under an MGA structure.”
Jonathan Jackson, chief executive, Previsico
“At Previsico, we considered becoming a parametric insurance at one point, leveraging our unique expertise in surface water flood forecasting. But, to be honest, it seemed like a far more difficult path compared to the prospects we had working in conjunction with established carriers rather than competing with them.
“Like many other terms in the tech sector, the term ‘disruption’ has become overused. While technology has disrupted the insurance industry, the truth remains that due to the market’s structure, all of the players are forced to collaborate. To take advantage of the prospects given by insurtech, collaboration has always been necessary. Large IT firms are also seeing an opportunity. Insurance is a very appealing market book, and you have the financial clout as well as market expertise through these organisations.
“We just negotiated an agreement with IBM to collaborate because IBM owns a company called the Weather Company, and that provides us access to their knowledge. If you’re a huge tech company like IBM, Google, or Amazon, you’ll need to hunt for new ways to expand your business. When you consider attractive markets, I believe the financial services sector has always been one that other companies have found appealing due to the high returns offered. The crucial aspect is that these companies have a thorough understanding of the technology and how it may be used.”
Tom Reed, partner, BDO
“A lot of insurtech is service offerings, where you have new software solutions that are changing business models within organisations, rather than pure disruption of their present model,” says one expert. Outside of the disruptors, there is more collaboration, which is understandable given that digital firms want finance and market access. So, though others come in with some fantastic ideas, new distribution strategies, and new products, the large insurers still control all of the capital. Many of them are doing it as MGA-type operations if you want to trade in that market and have a terrific new product to distribute.
“Insurance is a very capital-intensive business. If you wish to create a new policy, the simplest way to do so is to approach an existing player. In the long run, I believe there will be ILS-backed solutions that tap into various capital and financial sources, but in the near term, traditional A-rated insurers will continue to be the primary provider of insurance. Insurers are making a wise decision by delegating much of the development to Insurtechs. Rather than fighting it, they have accepted that it will change and are collaborating with startups.”
