Why we can’t afford to ignore InsurTech
11 Sep 2017
Some early participants in the InsurTech space have had a transformational effects on traditional insurance models, and point to the need for all life and health insurers to have their own innovation strategy.
Technology has significantly changed everyday life in the last few years. From our phones we can now do so much; banking, ordering a taxi, and doing our weekly shop. The result is a change in our expectations in the way we consume services. Yet when it comes to the world of insurance it’s fair to say there has been less progress in the adoption and use of technology. However, this seems set to change with a growing buzz around ‘InsurTech’ - the use of technology innovations in the insurance sector.
When you hear InsurTech you might imagine a coffee-sipping hipster working for a start-up in Shoreditch. Certainly there seems to be a wave of new companies popping up, mainly focused on the general insurance market, offering everything from car insurance by the hour, to insurance concierge services and chatbot style brokers.
It is easy to dismiss this growth in InsurTech as a distraction. After all, many of these start-ups either appear to be targeting a particular niche in the market or just simply have the odds stacked against them in a market that traditionally requires significant capital resources and infrastructure to succeed. However, in all likelihood the biggest threat from InsurTech is not from a start-up disrupting the whole market, but rather from incumbents who embrace the opportunity and drive greater innovation, either through internal initiatives or by partnering with such start-ups. In fact, the real risk for existing insurers is being left behind by the competition, and the opportunity cost of no action.
The InsurTech opportunity
InsurTech has the potential to deliver benefits at each stage of the customer life-cycle, whether it’s more targeted marketing models, automating advice, more accurate pricing and underwriting, improved customer engagement and retention levels, or managing claims more effectively.
In the general insurance space we have seen some significant developments including Insure The Box who use telematics to creating dynamic risk pricing for car insurance, and Lemonade whose Claims Bot can pay a claim in 3 seconds. To date there has been less innovation in the Life and Health insurance market relative to other insurance segments, but there have been some notable early examples. In terms of start-ups one example is Bought By Many, a social insurance model that pools similar, more unusual risks together, either to secure cover or discounts on existing products. Although focused primarily on general insurance, they have an offering for health insurance, and more will likely follow. With over 330,000 members across all of their groups and an average discount of 18.2%, it shows that such models can gain significant traction and provide real value for consumers.
Another newcomer, UnderwriteMe, has sought to simplifying the application process for life insurance policies by combining the underwriting journey with the initial quote, speeding up the process and removing any unwanted surprises from underwriting loadings further down the line. Numerous providers and intermediaries have already signed up to use this process.
As for incumbent life & health insurers, there has been less innovation. Vitality, although relatively new itself, is one of the few exceptions. By harnessing wearable technology and building a comprehensive wellness programme that integrates with the underlying insurance product, they have created an insurance model that both engages with today’s consumer, and that incentivises healthier behaviours. The aim is to drive lower claims and create more value for the customer. A recent study of the programme in South Africa showed that their most engaged members have 76% lower mortality, and can expect to live between 13 to 21 years longer, on average, compared to the rest of the insured population. It serves as an example of the significant value that technology is beginning to deliver for insurers and customers alike.
A question of strategy
Really insurers shouldn’t be asking themselves if they develop their own innovation strategy that taps into InsurTech, but rather, how they do so.
In developing a strategy, insurers will need to ask themselves whether to focus efforts on today's areas of strategic strength e.g. underwriting or product, or if it’s better to embrace new technology that helps to leap frog competitors in those areas where they are currently lagging the market.
Then there is the question of how insurers fulfil this structurally. Should they partner with start-ups, and so pick and choose from the specialists in each area, or should they seek to own the intellectual property by creating their own innovation hubs or buying start-ups aligned with their strategy.
New technologies will also introduce new challenges and risks. For example, wearable technology will mean much richer data sets. But insurers will need to understand how to meaningfully use these new data sources when there is no historical data to help assess risk and inform pricing. There is also the question of customer expectations about how data collected from new technology might be used, and of course new data regulations must be navigated too, with the introduction of the General Data Protection Regulations (GDPR) in 2018.
There is no doubt that new technologies will create many questions. This may require insurers to review the way they price, or change their customer journeys and other business processes to ensure they respond effectively and manage any emerging risks. It’s also not clear yet what strategies for innovation will be most successful in the long-term. However, regardless of the challenges, what seems imperative is that insurers do formulate their thinking around InsurTech, else they risk being left behind by the rest of the market.
Hymans Robertson have a track record of helping insurers develop innovative solutions to help meet consumers’ needs. Our products team would be happy to discuss any of the issues discussed above with you.