- Where Insurance & Technology Meet

InsurTech: Going Hard or Hardly Going?

To avoid being ‘disrupted,’ and – potentially – to improve the balance sheet, some insurers are driving experimentation of Insurance Technology (InsurTech). However, some initiatives are geography-specific and, from a global industry perspective, the commitment is underfunded. Is this just the nature of today’s innovation paradigm, or are we treating InsurTech as a lower priority?

There is enthusiasm for InsurTech

Matteo Carbone from Bain and Associates, who has been diligently following InusrTech developments,  started a recent post on LinkedIn by stating unequivocally, “The insurance sector is becoming more innovative.” 

To support this, Carbone cites two trends.  The first is the amount of spend on InsurTech.  I‘ll comment on that bellow.

The second is trend is the rapid escalation of the use of telematics, especially in Italy.

Italy is beating the world in telematics

Carbone writes that:

The Italian insurance sector represents an interesting case history about InsurTech. Italy has the most advanced experience in combining the car insurance contract with hardware (the black box) and using that data throughout the insurance value chain.

By all accounts, telematics has been very successful in Italy.  By the end of 2015, 16% of all insured cars in Italy were using telematics.  This compares with single digits most everywhere else.

In addition, Carbone notes insurers are introducing  gamification and rewards mechanisms to increase penetration and engagement in Italy.

But will this be replicable?

At this point, it seems that the rest of world has a ways to go.  In a 2015 report on Usage-based insurance, E&Y notes, “Global UBI market penetration is currently less than one percent, however expected market penetration in Europe, Asia and America is expected to be 15% by 2020.”

All things equal, this is encouraging.  But all things are rarely equal.  In August of 2015, we commented on some of the limiting factors for UBI, including regulatory limitations and data management.

As, or more significantly, vehicle usage is undergoing its own disruption.  Celent’s Donald Light has been commenting on the possible End of Automobile Insurance since 2012.

The self confessed killer in this drama?  Self-driving cars.   We have been keeping up on progress in our blog, TheIntersection .

A global view of InsurTech

It is clear that some leading insurers are investing heavily in digital tools and Insurech.  But at the global industry level, the investment is a fraction of that found in Banking.

Recently, CommerzVenures the venture capital investment arm of CommerzBank, produced a webinar to describe their view of InsurTech.

There were several overarching themes, which suggest the investment in InsureTech is not as aggressive as with other industries.  To rectify this effectively, insurers need to cooperate based on the strengths of the various players.

Who is spending what on which?

Here are a couple of factoids from the CommerzVantures analysis.  First, comparing industry investments:

  • The Global revenue pool (2014) for
    • Banking was US$3.7 trillion
    • Insurance was US$4.t trillion
  • However, the Start up funding (2008-2015) for
    • Banking was US$41bn
    • Insurance was $4.6bn

Turning to the spend side:

  • Risk management and claims cost reduction initiatives impact US$3.1trillion; innovative distribution impacts US$0.9 trillion
  • Whereas 50% of investment in start-ups go to distribution while 45% go to underwriting, claims, and risk management.

Is this an issue?

Looking back to previous pivot points in new technology, a slow response from the insurance community is not unusual.  Reaction to the commercial internet is an example.

However, many would argue that this time, it is different.  Technology is not just the medium, it is truly the message.  Half measures will not offer a defense against disruption.

What do you think?

Would we be better off focusing our efforts on core business processes and try to get some standards for innovation across the industry?

Or should we celebrate victories such as the telematics penetration in Italy and attempt to leverage these to a wider audience?