There are interesting projects across the globe—projects related to digital transformation in terms of distribution, product and services.
Here are my 4 top takeaways:
It’s happening and it’s happening now.
The insurance technology industry worldwide received around US$2.3B in investment funds in 2017 according to a report from CB Insights, a data and research company. This figure represents a 36% increase from 2016.
The combination of low cost of capital, increased use of smartphones and OIT adoption and the “entrepreneurship” phenomena has facilitated the proliferation of interesting insurtech projects across the insurance ecosystem.
There was also a proliferation of dynamic, vibrant projects, backed by smart folks, interesting technology and investors with deep pockets. It reminds me of a lot of 2008-2010 with the Smartphone tsunami, which opened the window to the application movement. There will be people that won’t make it, but this is going to be an unstoppable movement.
- Direct to Consumer (D2C) models are hard to sustain. They need a lot of capital.
I love the value proposition of many insurtech players. But they’re doing things the hard way, and they’re going to have a bumpy road ahead. Many of those players have high valuations, a lot of combined ratio and the growth of users. That’s good but not great.
As with many startups worldwide, especially the ones focused on the direct-to-consumer market, there was a buzz from some speakers that said probably some of these D2C projects won’t make it. Eventually, we’ll see them instead pivot into a new technology backed by incumbent service providers.
Also, it was mentioned that to succeed, these companies need to take a long-term approach and have deep pockets filled with capital, enabling them to sustain losses over a long time. And, it was mentioned during the session that we’ll see major tech players entering the space soon betting on some of these companies just as they’re getting traction. They have the capital to invest.
- It’s not a zero-sum game.
This effort isn’t a zero-sum game, with startups attacking incumbents. Instead, it will be startups plus incumbents, with both players adding something to the mix. That will help them maximize their strengths and minimize their weaknesses.
But the incumbents will have to learn from other industries and pay close attention to what innovations are taking place. We’re all tired of the “Kodak” speech. But the insurance industry could be the latest industry to be disrupted, with incumbents driving innovation in the marketplace.
Many incumbents have already realized that undertaking this transformation alone using legacy IT systems won’t fly. Instead, they’ll need to adapt existing technology to meet their needs with partners providing investment funds. It’s the smart move to make.
On the other hand, many insurtech investors are technology people, not insurance people. Insurance is highly regulated and complex. Going D2C is an option, but it requires a lot of capital to do it successfully.
They also have to assume the risk of being the first mover. That’s fine as is. But the chances of failing are great, so many companies are pivoting to become B2B and B2C players, providing technology support to incumbents transforming the industry.
That will reduce the undertaking’s complexity and risk. These companies will focus just on technology, with incumbents having the necessary assets to deal with the market, regulation, etc. This approach is a win-win for everyone involved.
Large Legacy Insurers' has been very active in this marketplace during the last several years. They’ve invested and partnered with the industry’s best insurtech players in this win-win approach.
For Example : Chubb has provided insurance and APIs, like Coverwallet, for SMEs in the USA; developed new products like life insurance for just the length of the flight, like Sure; as well as adopted technology to enrich the users' experience and provide better customer service.
The biggest beneficiary: The customer
There are no doubts that with all this change customers will be the biggest beneficiaries. All this focus on new technology will generate better user experiences, increase corporate transparency, enhance tailor-made offerings and produce better claims and servicing experiences. The sector is critical by itself with each new development setting a new standard in the industry.
Also, I see incumbents serving clients better across the entire customer journey. What I didn’t see early on was incumbents working with carriers in other industries. But now I’m excited about what companies in this sector are doing for customers.
There’s never been a better time to work in insurance. We’ll see a real industry transformation in the next five years with technology starting to play a critical role in defining new products and providing better customer experiences across the entire insurance value chain.