InsurTech is broader than meets the eye, or proper noun in this case! Some might like to segment InsurTech from FinTech, and perhaps rightly so – FinTech has been associated thus far with banking activity: payments and foreign exchange has certainly evolved in the past two decades, during which time it is fair to say that InsurTech was neither a buzzword, nor was there much by way of advancement in the insurance industry. A wave of comparison websites emerged in the early 2000s,¹ as did strong niche non-life insurance brands such as Direct Line in 1991, followed by esure and Churchill in the UK, but none of this propelled the industry – price comparison and competition (all else remaining equal) could only lead to compressed combined ratios and compromised bottom-line performance, industry-wide. But for me, “financial institutions” encompass insurance companies since insurance is a financial arrangement, and naturally includes banks, asset and wealth managers, and all other participants in the financial industry. And so, for me, InsurTech, is a subset of FinTech, but we should be clear on what InsurTech literally means. It’s about solving the problems of the US$5 trillion insurance industry² and innovating for the future of the industry. InsurTech players can either be directly active in the industry, or can equally provide services in and around it that make the experience of insurance a better one, not just for the customers but also for the providers. Banking kicked off its digital revolution first, but a deposit-taking institution has not nearly as many concerns as one who prices and takes on risk.

The Problems and Challenges of the Insurance Industry

The insurance industry is ripe for disruption and ready for evolution for a variety of reasons: consumer expectations, legacy systems, demographic changes, and – at least on a non-life and health basis – changes in consumer behaviour with respect to underlying assets. The new generation is moving away from asset ownership and the advent of customer-to-customer (C2C) marketplace models is enabling this. Even changes in the way people work means that remuneration and benefits are changing. There are numerous places in the value chain where technology can have an effect including: distribution, pricing and underwriting, big data for better risk models, claims handling, and reinsurance.

Incumbents and newcomers have an interesting dynamic in the insurance sector. While, in other industries, technological advance and new business models leapfrog and displace respective incumbents as the product or solution of choice, for example, entertainment streaming versus DVDs and VHS, the same thing does not happen in the insurance sector. Why? The regulatory environment is certainly a protective moat for top-tier insurers and a barrier to entry for InsurTech newcomers. To be a full-stack insurer, meaning one that does it all – the customer acquisition, the risk pricing, the underwriting, the claims processing – one needs to be backed by a balance sheet of regulatory capital. This cannot be built up overnight, but there are plenty of incumbents with the necessary capital that has been built up patiently over decades, even centuries. Incumbents are the best testing ground for new InsurTech propositions – they already have the capital and reserves, industry access and know-how, and a customer base that they are looking to retain.³

For insurers to remain competitive, they must think of ways to compete beyond price alone. Insurance purchases come with a range of reasons and timings, ultimately it is a grudge buy – it’s either a regulatory requirement, conducted for reasons of risk aversion, or in some behavioural sense due to fear. InsurTech should seek to make it a better experience, and a convenient one at that. Incumbent insurers also tend to have back office challenges where pieces of the business do not communicate as well as they should, and could, if the systems were built today. This becomes apparent when we get to consumer touchpoints – policy purchase, potential claims, and renewals.

Is it all Problem-solving or is There Real Innovation too?

The world is full of opportunity to innovate: insurance is no exception. New product lines will be created, and, in doing so, the base expectation would be for them to be tech-enabled and agile. There are a couple of ways new product innovation will occur in the near term. New product lines, such as cyber insurance, will become more prevalent. They won’t just be for large enterprise clients but will trickle down to the mid-market companies, SMEs, and even individual/ personal consumer policies. Most of us now have digital assets and could suffer a financial loss should these assets be breached, just as we would if we were to be robbed of our physical assets. Insurance companies will certainly want to provide for new business lines like these; but are they the right people to assess the risk? Does the existing insurance industry understand cyber risk? Chances are that they are not best placed to do this internally, just as a cybersecurity company isn’t best placed to perform actuarial analysis, and this is where InsurTech would play a role. The future of new products such as cyber insurance relies on the partnership and collaboration of the insurance industry who can manage and provide capacity, and the cyber risk experts who can assess risk and help insurers to price. It doesn’t stop here, though. As with other business lines, prevention will be a big focus and cyber companies are best placed to help manage risk and provide advice and services centred around prevention. Take, for example, health insurance, which is a benefit insurance rather than a product that pays out in the event of a loss. Many insurers in the space are encouraging their customers to go to the gym, quit smoking, and are promoting a healthier lifestyle to ultimately improve their own claims payouts. The same preventative attitude can be taken to financial loss products by encouraging people to drive better and to be safer with their digital assets as per the earlier example of cyber risk.

New value-add services adjacent to insurance will make insurance more appealing to the customer. PropTech, AgTech, HRTech, and HealthTech, to name but a few, are well placed to provide additional services to the customer and be a new distribution, data collection, engagement, and prevention opportunity. Buzzmove in the UK is a tech-enabled home removals booking platform and part of the London PropTech ecosystem. After learning about your new home and moving your inventory, Buzzmove is in a great position to offer home and contents insurance, without the consumer coming to Buzzmove to necessarily purchase insurance – it is an added convenience.

New product types will also emerge. Insurers struggle to innovate with product types as they may not be cost-effective for them. Other financial products have undergone a wave of financial inclusion and the underbanked are slowly but surely being provided access into the financial system. App neo-banks such as Pockit, Monzo, and Revolut with more sophisticated and alternative know your customer (KYC) processes mean that more people can have bank accounts. The same can happen for insurance, but insurers struggle to access new customer bases and curate the right product. Customers may want access to a pensions, savings, or life insurance-type product, but the economics might not make sense when considering the size of premiums. InsurTech can play a big role here and there are already trends emerging with microinsurance for health policies, such as BIMA in Africa.

Where Does InsurTech Play a Part?

The best way for companies in and around InsurTech to help transform the industry is to collaborate. Many incumbents are open and willing to engage with the new crop to enhance their own service, such as AXA, Transamerica, American Family, Ping An, and Mass Mutual,⁴ and they remain domain experts in their business lines to be able to advise in return. The regulatory moat means that for new InsurTech companies to do it all, becoming known as the “full-stack InsurTech”, can be a slow, uphill, and capital-intensive burnout. Insurance companies have the balance sheets and the know-how – InsurTechs have the tech and a vision for where to steer the industry next.

InsurTech now and Going Forward

For many, InsurTech paints the picture of a full-stack insurer that solves and does all I have described as a digitally-native carrier, acquiring customers through the promise of better pricing and experience, while simultaneously giving more than just risk coverage to extract a better customer lifetime value. For me, InsurTech is something broader and may, in some cases, make incumbents invisible and parametric. We may not even recognize a product, technology, or software to be transformative for the insurance industry; the best InsurTech might not be identified as InsurTech at all.

Insurance is undergoing an industrial revolution, and, in doing so, all aspects of the value chain will both evolve proactively due to InsurTech, and InsurTech will reactively produce new solutions to serve the ecosystem. Broadly speaking, the taxonomy will follow these pieces of the value chain (distribution, claims, underwriting, and so forth) and the different product lines across life, non-life, and health insurances. However, even this will evolve over time as new buzzwords and new industry-wide trends emerge.

As the automobile and mobility industry evolves, so will the corresponding insurance industry.^5,6 When increased life expectancies will translate into different staging and segmentation of life beyond simply studying, working, and retiring, so will the life, wealth management, and pensions industry. There’s never been a better time to be in and around InsurTech.