The InsurTech start-up scene is maturing. Venture investors put USD 8.4 billion into InsurTech-related start-ups over the six-year period, 2012 to 2017. However, there has been an increasing proportion of established (re)insurers’ participation in InsurTech investments, as digitally-driven innovation in the insurance ecosystem is arising from incumbent (re)insurers. By partnering with, or acquiring start-ups with useful technologies in the digital space, incumbent (re)insurers are leading the efforts to digitise the insurance value chain rather than disruptive start-ups.
Technology is affecting all parts of the insurance value chain:
- Product development: usage-based insurance, new business models, sharing economy, emerging risks (cyber)
- Underwriting: use of big data, AI and predictive analytics for risk identification and assessment
- Marketing: segmentation and personalization, driving customer experience and customer-centricity
- Distribution: multi-touch omnichannel, smart devices, AI-driven robo-advisers
- Policy and claims management: big data to reduce fraud, blockchain in smart contracts.
Technology applications in distribution, services, and new risk pools are of greatest interest to insurers. The most visible changes to the insurance value chain centre around distribution. The biggest potential lies in underwriting, claims and fraud, operational efficiency and new products.
But, the impact of technology extends beyond the insurance value chain itself to the whole business ecosystem in which (re)insurers operate. The combination of new business models; machine intelligence; proliferation of data; and changing customer behaviours are set to transform the industry.
The outlook for insurers:
- Technological leadership and innovation: Winning companies will need to go beyond following technological trends and innovation; high speed of obsolescence.
- Customer ownership: Customer access and “ownership” are key to profitability; success depends on offering better value (products, services, customer experience) to customers; technical underwriting skills alone will not be enough
- Efficiency (cost savings) and effectiveness (better products): Digital technology puts margins under pressure; need to make operations more efficient and products more relevant for clients.
- Scale and network effects: Digital platforms provide the potential for scale economies; network effects help with better access to clients, data, talent etc become a barrier to entry.
- Speed and agility: Incumbents need to move quickly to compete with digital competitors.
“Data is the new oil” in terms of a driver of value in the technology sphere and has become paramount in any strategy to navigate digitisation. Yet, 90% of available data is qualitative and unstructured data (e.g. text, audio, and video). This has become a new opportunity not fully exploited by insurers.
Looking forward, BigTech (e.g. Amazon, Google) entrants are now perceived as the biggest potential threat to insurers. Advancements in connected cars could turn car manufacturers into potential competitors and non-traditional players are more likely to act as new distribution channels rather than become full carriers.
