By Thomas Depuydt (B-Hive)
A full week of interesting panels and presentations happened earlier this month at Fintech Week London. We were on sight for the insurtech panel, as it’s one of the up and coming innovation verticals.
The current state of the insurance industry was described by the entrepreneurs on stage as…
· Lacking customer centricity
· Intermediaries in the value chain that add huge costs and limited value
· A rise of data to allow better priced, tailored products
Or, in other words…
The perfect storm for disruption
We have been hearing that for a while now, but it’s about time someone actually does something about it. The entrepreneurs in the panel representing companies such as Homelyfe, hiBob and Yu Life are planning to do exactly that. One of the founders said he does not like the word disruption, as it sounds too negative. He claims, “there will be a better experience at a much lower cost” - same same, but different.
A first innovation wave will target distribution channels, cutting out middlemen – a practice stylized by e-commerce. Lower premiums for consumers and more individualized knowledge (data) of the consumers should be the outcome. The second innovation wave is likely to be on the risk and product side, where individualized offerings replace plain vanilla products and in a later phase, “protection-as-a-service” will be replacing existing insurance products altogether. This comprehensive protection will be data-driven and link to actual life events and behavior.
Several startups are jumping on the insurtech bandwagon, but entering the insurance industry is complex, and a deep knowledge of industry dynamics is crucial to succeed.
Disrupting within the existing value chain is a challenging task, as the integration points are often inflexible, due to regulation and legacy IT infrastructure.
The entrepreneurs are strong believers in creating a parallel channel straight to the consumers (i.e., a B2C approach). They link directly to re-insurers, creating direct competition with incumbents. They clearly expect that the pricing of risk will be commoditized in the future.
Is there a place for collaboration with incumbents?
According to the entrepreneurs, insurance companies are faster to react to the digital insurtech threat than their banking counterparts to the fintech wave of companies a couple of years ago. There is a clear willingness to collaborate and learn, although this brings its own challenges:
Incumbent insurance players often…
1. Struggle to identify the right partners to innovate with
2. Do not always have the technical capability to integrate easily
3. Have legal and risk constraints that impede collaboration
An area in which large corporates are surely looking for synergies with digital companies is the SME market segment. Like in banking, this huge market segment is poorly serviced and incumbent insurers are looking for the right digital channels to reach the SMEs. While the business imperative for collaboration with digital channels to service the SME segment is a no-brainer, the legacy architecture makes it a big challenge to make that happen due to e.g., a lack of open architecture/APIs. The move towards the cloud that is slowly taking off in the insurance industry could help alleviate some of these concerns.
There isn’t a single panel discussion in London without a Brexit question these days. The entrepreneurs’ worry seems to be more on the talent side (finding full-stack developers will become even harder if no EU citizens can be recruited) and slightly less on the regulatory side, where regulatory stability is almost more important than the nature of regulation itself. The entrepreneurs kept their cool and approached the topic with pragmatism or, to quote one of the founders, “I am far more worried about hiring my next developer than I am about what Theresa May will or won’t do.”
Are you struggling to identify the right partners with which to innovate?