When traditional P&C insurers look at the world of InsurTech firms, there are two common reactions:
- InsurTechs are a flash in the pan: They have some slick customer interfaces, but not enough depth to be a lasting concern;
- InsurTechs will disrupt our business model: They will process the business with zero friction and take a large portion of our profitable customers.
As InsurTech evolves, there are nuances that insures must actively understand.
In his keynote address at the InsurTechQC conference Henk Broeders, Senior Partner at McKinsey & Company, provided detailed information that suggests both descriptions have a measure of truth, but the final impact is a very different picture.
In his presentation, Broeders drew heavily on the a recent McKinsey report, InsurTech-the threat that inspires.
What are the characteristics of InsurTech?
Using McKinsey data, Broeders noted that for the 1,500-2,500 InsurTech startups. Focus on Property-casualty business is highest at 46%. Health insurance follows at 33%. Life is lowest at 21%.
The largest focus area is distribution, with 75% of the startups. These organizations focus on: convenient access to products, product costs comparisons, and ease of purchase.
Culture is a major differentiator for the InsurTechs. According to McKinsey,
- 43% of InsurTechs have less than 10 employees
- 45% have less than 3 years in business
InsurTechs are exploring the edges of insurance products. The McKinsey report notes:
InsurTechs are also adopting newer technologies and concepts that incumbents are only just beginning to experiment with. …Certain of the new technologies specifically support insurance product innovations, including micro-insurance, usage-based insurance, and peer-to-peer insurance.
Most significantly, the InsurTechs have a native Agile predilection, viz., the employees mix business and technology effortlessly, and have a high focus on specific tasks.
For those of us who have had to manage insurance silos (business versus technology), the InsurTech Model is a powerful mixture,
Are investors creating an InsurTech bubble?
Some analysts suggest investments that InsurTech startups are higher than other sectors. That begs the question: Is InsurTech overcapitalized?
Broeders notes that there is about $5billon invested in InsurTech, which represents 0.1% of total worldwide premiums. In his opinion, this is not yet in overcapitalization territory.
Are InsurTechs bringing threats or opportunities?
Data from McKinsey suggest that InsurTechs are going after core business elements:
Forty percent of InsurTech have a primary value proposition built around finding new ways of growing, i.e. by introducing new products or services or entering new segments, and another 22 percent are focused on lowering acquisition costs typically by providing customers with a digital interface and using a direct model.
And the InsurTechs are targeting the customer with strategies based on Data, Big Data, and AI tools:
- Social engagement (use of social tools as part of the insurance process),
- Frequent interactions with clients, and
- Moments of truth
That said, Broeders noted that, within the InsurTech community, the majority (61%) could work with incumbent insurers, versus ‘true’ disrupters (9%) and customer intermediaries (30%).
Now, on the buy side….
It is clear that InsurTechs are influencing the business of insurance in Canada. So, insurers would do well to worry about InsurTech, but not in a traditional way – “how do we dismiss this or absorb this new stuff. “ Defense is not helpful.
We all need to actively understand and trial InsurTech within our own domain and test implementations with InsurTechs. Stay tuned to this space and explore others. This is a work in progress.
And leave a comment or question, if you are inspired.
