Technology has been disrupting the financial and insurance industry since the Big Bang in 1986, when automation and electronic trading revolutionised the London Stock Exchange. Now it’s the turn of the insurance sector to face fundamental change as new companies, offering new ways of doing business, take on established incumbents.
Whether it’s price comparison sites giving customers quick and affordable ways to buy insurance, in-car telematics that reward safer drivers with lower premiums or chatbots giving customers speedy answers to their insurance questions, technology is changing what is possible in insurance.
So yes, Insurtech does threaten everything about the traditional insurance industry, but if handled correctly, it shouldn’t spell disaster for the insurance giants. And insurance is an industry that needs disrupting. It is not equipped to do business with today’s digital-first consumers. Insurance companies need to adopt smarter business strategies and more customer-focused ways of doing business, then the big insurance names can flourish in the age of insurtech.
‘By combining the technical possibilities with investment in innovation, insurers can create new revenue streams to serve new customers in areas that were previously inaccessible.’ – Hampleton, M&A market report 2H 2018, Insurtech Report
How is insurtech changing the insurance industry?
Insurtech is rebalancing the insurance business in favour of the customer. These new technologies save the customer time, money and aggravation. Previously, customers would stay with their insurance companies year after year, because finding out about what else was available was too hard. Now, price comparison sites make switching providers easier and allow customers to shop around for the right coverage. Of course, this has a negative effect on insurance firms’ profit margins.
Startups like Cuvva take it a step further and enable drivers to purchase car insurance only when they need it, on a pay-as-you-go basis. Finally, where making a claim used to be a long, drawn-out process, it can now be done in minutes online.
These changes allow insurance to stay relevant in a world where millennials and members of Generation X make buying decisions. If the established insurance companies cannot appeal to these demographics, consumers will bypass them completely in favour of newer models, as we’ve seen in the fintech sector with companies like Revolut.
Technology doesn’t only benefit the customer, however. Tech makes it much easier for insurance companies to detect fraud and erroneous claims. It also makes it easier to assess the risks associated with the policies they provide. Finally and perhaps most importantly, tech allows insurance companies to cut costs. Online forms and chatbots replace insurance salespeople and customer service staff. A report by McKinsey asserted that automation could save insurance companies 40% of their running costs.
This is good news for the traditional insurance industry, but it also means barriers to entry are lower.
How is the established insurance industry adapting?
The big insurance names are taking steps to ensure they are not left behind by progress. This is happening in three areas:
- Updating current systems
- Implementing new ideas
- Acquiring insurtech startups
One of the barriers to insurance companies incorporating new technology into their businesses is old, entrenched IT systems. According to a McKinsey report, 9 out of 10 insurance companies see this as a roadblock. The systems that power their business are not up to the demands of the 21st century. As a result, insurance companies are addressing this problem. In 2016, insurance companies spent $187.3 billion on IT, with a spend projection of $208.1 billion in 2018. It’s the price of staying competitive.
Insurance providers are also incorporating technology into their businesses to attract and retain customers. An example of this is Aviva using mobile technology to assess how well a driver conducts themselves on the road in real-time, then adjusting their premiums to reward safer driving.
Finally, insurance giants are going straight to the source of disruption and acquiring insurtech startups. This allows them to harness the bold thinking and willingness to take risks that are lacking in bigger, more monolithic companies. Examples of this include Zurich International acquiring Bright Box, the connected car platform, in 2017.
‘Since organic growth and investing in R&D is a long-term game, M&A has been the natural solution to incumbents’ problem.’ – Hampleton, M&A market report 2H 2018, Insurtech Report
The established incumbents in the insurance industry have found themselves threatened by insurtech, but on the whole, they have not ignored this threat. They are taking steps to adapt to the new landscape and most importantly, create win-win situations for themselves and their customers. As technology progresses and new developments such as AI and blockchain infiltrate the insurance industry, this trend looks set to continue.
Here are some companies in this area we’re keeping our eye on.
ThreatInformer – Providing cyber risk intelligence to the insurance sector
Neos – Smart home insurance that protects your home through your phone
Axieme – P2P/social insurance startup
Broker Buddha – Helps commercial insurance brokers grow sales by simplifying the application and renewal process.
Miro Parizek – Founder & Principal Partner
Miro Parizek established Hampleton in 2013 with a group of fellow deal makers and technology industry entrepreneurs, uniting hands-on industry expertise and seasoned transaction experience together for the optimal M&A advisory.
Miro has been providing M&A advisory services to the technology industry since the pre-dot.com era and has managed scores of transactions supporting privately-held sellers and publicly-traded companies. Miro has degrees in International Finance from the Wharton School of Business and in Computer Science from the Moore School of Engineering.