FinTech for the Insurance Industry
The EU PSD and PSD2 directives battered down the doors of the banking industry for FinTech disruptors. These agile, tech savvy companies are now upsetting legacy players in another industry; Insurance.
Although no specific EU directives are aimed at the Insurance market, it is also highly regulated and dominated by big companies. Like the Banks, many larger Insurers have ageing systems and business models that make it difficult and costly to implement new technology. They are also looking to stay relevant and appealing in the eyes of consumers that are increasingly confident in choosing alternative providers of financial services. With these important similarities are Insurance companies learning from the Banking industry?
Let’s just cover off a few basics first.
What is InsurTech?
InsurTech uses the latest technology and data including the Internet of Things such as connected/smart homes to remodel traditional insurance products. They can make insurance products better value with a simplified UX. Great examples include Cuvva that has introduced ‘pay as you go insurance you control’ including a subscription product for infrequent drivers and enabling customers to drive any car by the hour. London based InsurTech startup By Miles has received investment of £350k. The company is set to launch what it describes as a new kind of pay-per-mile insurance policy later this year.
American Express has made a major investment in Next Insurance. The company collects and analyses data so it can sell customised insurance to small business owners previously disregarded by large insurers. Next raised $29 million in May and this latest investment brings its current total to $35 million.
The infographic below from StartupBootcamp provides a useful view of InsureTech:
An irresistible force for change and innovation
In his 10 InsurTech Trends for 2017, Roger Peverelli of BankNXT listed Contextual Pull Platforms as a key emerging trend. He foresees a move away from ‘push platforms’ as part of the shift to engagement innovation. Push “is about force-feeding products to the customer, pull is about understanding and solving the need behind the insurance solution…”.
In basic terms, it’s about giving customers what they want, not just the product the Insurers happen to have.
Peverelli also highlighted the importance of the “Symbiotic relationship with insurtechs”. He notes an increasing number of insurers are beginning to adopt the methodologies of lean startups such as creating in-house accelerators and incubators to encourage innovation. Nick Emmerson at AVIVA echoed this sentiment in his blog about AVIVA’s partnership with Plug and Play, an ecosystem for InsurTech start ups based in Silicon Valley.
How can InsurTech improve the industry?
Insurers such as RSA, AVIVA and AXA are beginning to recognise the benefits of InsurTech start ups. Many now offer simple online functionality or customer portals enabling policy holders to download documents and make basic changes. However, consumers are demanding more personalised and flexible cover. The days of the “blanket cover” policy are numbered.
New technology offered by InsurTech companies enables more accurate risk management and reduces losses for Insurers. For example, safe driving is rewarded in the motor insurance industry where drivers have vehicles fitted with Telematics (a black box recorder). The use of technology to reduce risk is also evident in home insurance with products like Nest’s intelligent smoke alarms and other intelligent devices.
Insurance is yet another example of the advance of Artificial Intelligence (AI) across industries. Early AI use cases have been in the optimisation of tasks including claims processing and underwriting.
An uneasy collaboration
The insurance industry is being dragged into a new digital arena by InsureTech start-ups and changing consumer expectations. Partnering with an InsurTech company is likely to be the least costly and quickest route to fend off increased competition.
According to The Intelligent Insurer posting 14 June 2017 , insurer Zurich has just announced its partnership with StartupBootcamp. Antony Elliott, group head of business transformation at Zurich says, “A few years ago, the insurance sector thought that these start-ups were coming to eat our lunch, now we see them more collaborating and joining us for lunch.”
Although the will to collaborate is there, big issues remain. According to a study from Startupbootcamp InsurTech and PwC, only 17% of incumbents think they’re good at collaborating with InsurTechs. Findings suggest that many startups say partnering with incumbents is “frustrating” and slow. Concerns about IT security loom large in the minds of the incumbents.
The Insurance industry appears to be less inclined to stick its head in the sand about the likely impact of new technology. This may be because they have wisely learned from the Banks or because the Insurance industry is less resistant to change.
The good news for Insurers is that they will continue to benefit from the ongoing experiences of Banks as they reluctantly become a case study for innovation and kind of model for the Insurance industry and their InsurTech partners.