A recent report documents the geometric increase in organizations and funding dedicated to innovation and disruption in insurance. While the result is a vibrant and robust ecosystem for insurers to navigate, the authors add an important caveat about the actual reach of the efforts, and suggest a trip outside might be in order.
“InsurTech” is the name given to a broad sector of technologies and technology suppliers; InsurTech products enable innovation and disruption in the insurance industry. Its counterpart in other financial services is “FinTech.”
InsurTech (the Report) has Arrived …
… And it was authored by Celent analysts Catherine Stagg-Macey and Michael Fitzgerald. Published in May, it is the first of a series which focuses on digital innovation in the insurance industry.
The report’s purpose is to describe the emerging ecosystem and to provide definitions, which will be important as the basis for the forthcoming reports.
But the current report contains important insights on its own.
InsurTech is real now
Well-known insurance brands – including Aviva, Allianz, and Axa in Europe, American Family and Northwest Mutual in the United States, and PingAn in China – are making significant capital investments in technology and technology companies. Stagg-Macey and Fitzgerald note that this is attracting public attention because “it is such a departure from the ‘usual’ insurer business.”
The authors do an excellent job categorizing the investments according to function and type (accelerators, incubators, venture capital, partnerships, etc). And they provide roadmaps, options and future scenarios.
However, the authors say that all insurers must ask themselves one question: “How do we engage with the innovation ecosystem?”
Like love, you can’t buy InsurTech with money alone
“The imperative to innovate is widely agreed across the industry,” the authors write, noting that 86% of insurers asked noted that it was ‘critically important’ to effect innovation in the next three to five years.
The question now is ‘how’ – and that’s not so easy.
Insurers are spending money. Citing CBInsights data, the report notes that the US$2.65 billion spend on insurTech for 2015 was a 3.5 times multiple over the previous year.
But money alone is not enough. The authors remind us that 20 years ago we proved that “investment alone is not a great proxy for health of an ecosystem” (if you missed that experience, Google ‘Dot-Bomb’).
We are on shifting sands, and we can develop expertise. However, the authors quote an InsurTech player who said that, at the minute, insurers are ‘unsophisticated in their approach’ to working with tech suppliers when compared to banks.
So, what are the issues?
The report authors put it succinctly:
InsurTech is hard. It is not about gamifying the dating process, or matching dog owners with people who want to walk dogs. Insurance is about pooling risk for the benefits of its customers.
At minimum, this brings in
- Pooling of risk
- Product development
- Actuarial analysis
- Claims management
- Regulatory requirements varying widely by jurisdiction
According to the authors: “What this means for InsurTech is that it needs entrepreneurs with knowledge of the insurance value chain and the regulatory environment.”
Not trivial. But doable.
The solution? Get Outside
Stagg-Macey and Fitzgerald quote Steve Blank, author of The Startup Owner’s Manual: “There are no facts inside your building, so get outside.”
Insurers have run-the-business challenges which capture significant mind-share. Celent believes that there is “significant energy and investment happening outside the four walls of insurers” in insurTech organizations which can be leveraged.
Celent also believes that the insurers could undertake this without facing disruption by the selfsame InsurTech firms as “we expect that true disruption is still beyond the horizon.”
So what next?
Insurers still have work to do to build internal infrastructure, which will support a go-outside strategy. Celent will be continuing its series of reports on InsurTech.
In addition, at the 2016 Insurance-Canada.ca Executive Forum, a number of sessions will focus on the Outside-In approach with case studies on InsurTech services. Mike Fitzgerald will join Tim Attia from Slice Insurance to discuss “Insuring the Sharing Economy.”
Are you ready to go outside to bring InsurTech in? We’d like your thoughts.