Embracing an Insurtech-filled Future
Insurance, with its natural aversion to risk and rapid change, is an industry not typically thought of for its innovation. As venture-capital backed firms turned to financial services in the early part of this decade, banking generally was their first target. Banks have moved from warily eyeing fintechs as emerging disruptors, to embracing and working with them. Today, banks are increasingly working with fintechs in a variety of models -- partnering with, investing in, acquiring them, and even providing seed funding in some instances. Banks clearly are looking to capture lightning in a bottle and find a model -- or fend off a model -- that upends the traditional banking system.
Insurance, though, is rapidly catching up. Leading insurers are starting to partner with dynamic new insurtech startups that are looking to reinvent insurance risk value propositions. Some of these firms are leveraging the latest technologies to transform the industry withnew distribution models and new products. But our recent IBM study of insurtech, which surveyed more than 1,200 executives globally across traditional insurers, insurtechs and venture capital companies, found a different focus. Three quarters of insurtechs identified are more focused on "building a better mousetrap" for portions of existing insurance business processes. Many insurtechs take advantage of inefficiencies in the existing industry, substituting partsof the insurance value chain, and by doing so often can bridge traditional industry players, the customers, and their risks. Partnering with such firms can give insurers a competitive advantage if handled correctly.
And insurers are certainly taking note. 81 percent of outperforming insurance businesses have either invested in or are already working with insurtech businesses, compared to 45 percent of all others. Investment in insurtechs between 2014 and 2016 topped USD five billion (CB Insights). In 2018 alone, more than 30 percent of global insurance customers were using insurtechs standalone or in combination with incumbent firms to fulfill their insurance needs (World Insurance Report).
In developing strategies to adapt to the new era of insurtechs, some insurers have begun focusing their attention first on defining technology-driven new business models. New tools like artificial intelligence (AI) and blockchain can enable insurers to make connections more quickly with other industries, building integrated risk products across value chains in retail, manufacturing, transportation, healthcare, and financial services. Insurers can insert their products into those value chains, and collect information from those chains that is relevant to customer-centric value propositions and risk.
There are some signposts we've observed in our work with insurers and technology integration that point to more successful insurtech partnership models. Insurers who keep the following in mind tend to reach value faster:
Collaboration is key: For a long time, insurers believed they should develop every single product within their value chain on their own. The rise of insurtechs illustrates just how important collaboration is and the types of innovations it can drive. Going forward, insurers should actively and continuously seek these types of partnerships both within and outside the industry to keep pace with the changing market. Learning from other industries such as banking is key to continuing to analyze customer trends and patterns and remaining competitive.
Becoming more agile and flexible: Today’s insurers need to be hyperaware of insurance model evolution, whether it be from insurtechs or new insurer partnerships. These have the potential to quickly impact any insurer's business today. Insurers must look beyond traditional methods to identify and drive innovation. Focusing on speed-to-market becomes paramount in such an environment.
An increased focus on the customer: Touchpoints with customers are opportunities for insurers to build overall trust, loyalty and satisfaction. In today’s digital-first world, this means interacting more often. It means ensuring each touchpoint is efficient and providing consistent value to the insured -- holistic advice, coverage at the point of risk, and tailored products. This ensures a compelling experience that keeps them coming back -- and earns their trust.
Finally, insurer CIOs also need to consider the technology enablement of these capabilities. Can your systems react quickly to changing business demands for more data, more partnerships across industry boundaries, and new and ever-changing data availability? Can you facilitate new business partnerships quickly? Can you expose insurance processes as API-style inserts into other industries? The insurance industry's rapid move to platform provisioning of core insurance systems, and the degree of integration of such platforms to enterprise-class connection and analysis tools, will be table stakes for CIOs going forward.
The global insurance industry is at a crucial inflection point. The speed of technology change has insurers redefining their business models and using innovative technology to change the way they do business. Insurtechs are forcing the industry to consider generational change of crucial processes and business models. To keep pace, insurers must partner and work closely with insurtechs – or risk losing valuable market share.
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