Insurance technology innovations are often viewed by insurance businesses as a threat to their operating models, however KPMG Head of Insurance Martin Blake told ANZIIF it’s time to take a fresh look at its potential.
Martin Blake, who is also KPMG Chairman in NSW, believes that in the face of a disaggregating value chain, incumbent insurance players must consider the competencies in which they need to invest to maintain their strong competitive position.
“On a macro level, insurance as an industry is lagging behind,” Blake says. “Around the world insurers are struggling with a myriad of challenges: low levels of consumer trust, high levels of competition, low interest rates and shrinking profitability.”
Customers are also being influenced by the digital experiences they’re having in adjacent industries, which is having a significant impact on their expectations.
“It’s difficult to deliver 2017-levels of customer service when you’ve got core legacy IT systems that are 30-years old,” Blake says.
Compared with other industries, insurance businesses have fewer interactions with customers, assuming smooth sailing from sign-up through to policy renewal.
“If you look at net promoter scores across the insurance value chain, they fall to their lowest level during the claims process. Recent scandals about unpaid claims and adviser fees have negatively impacted customers’ trust in the industry,” he says.
Blake says there is high demand from Australian insurers looking for new technologies to improve customer service, deliver services in new ways and to transform operational models. Theoretically, that should create a great opportunity for insurance start-ups to collaborate.
However, despite a clear need to address insurance technology, insurtech has largely been left behind in terms of the fintech agenda in Australia and New Zealand. While insurtech is now attracting venture capital from insurers overseas, the start-up market in Australia is limited. Blake says part of the problem lies in the failure to address innovation.
In a KPMG survey of 300 insurers globally in 2015, more than 90 percent of insurers thought innovation was a priority for their business. However, less than half had budget allocated for innovation, or someone actually responsible for innovation.
“Only a third had a way of tracking return on investment from innovation. So there’s a recognition that something has to be done which isn’t being matched with action. That’s the reason Australian insurtech has lagged behind,” Blake says.
Blake says this could be remedied if companies committed to having senior people to lead the innovation agenda.
“It’s pivotal to ensure your organisation has someone accountable for innovation and that this part of the business is sufficiently funded. Equally, Australian insurers need to take a more external-facing view to discover what they could learn, particularly from other industries that might be more advanced in their thinking.”
Is insurtech disruption really a threat to the traditional insurance model? Blake says no, and describes insurtech players as either herbivores, who are collaborators trying to help incumbents provide innovative solutions and value, or carnivores, who are disruptors trying to take a slice of the action from incumbents. Given the smaller market size of Australia, the need to partner is paramount, making Australian insurtech start-ups most likely to be herbivores.
“The big buzzword in insurtech right now is ‘partnering’ rather than ‘disruption’. Australian start-ups need access to distribution in order to scale their businesses, so there’s a strong symbiotic relationship between them and the larger market incumbents.
“Start-ups don’t have the time, patience or money to get involved in the more tiresome, regulatory and capital intensive parts of insurance so they partner up with established insurers who have the capital and regulatory expertise, but lack the technical know-how.”
Obviously this kind of partnering means risk is carried by both sides. Start-ups might find their ambitions stifled by the limited horizons of their insurance partners, while their large insurance investors risk becoming pure capital providers forced to cede prized customer relationships to the start-up.
Nevertheless, Blake says the fear that customers will soon bypass brokers or insurance companies in Australia or New Zealand is unfounded.
“There is a raft of insurtech companies overseas going direct to customers, but they represent a relatively small proportion of gross written premium in the Australian market. Certainly, aggregated models in Australia haven’t taken off in the same way they have in the UK, for example, because large insurers are reluctant to participate in them.”
More importantly, Blake says insurers need to adapt and focus on better engaging insurance buyers throughout their journey.
“Insurtech companies can leverage data analytics for traditional insurers to help pinpoint a client’s place in the buying cycle and the trigger points when they can best be engaged. That’s pretty important.”
KPMG is a sponsor of the Australian New Zealand Institute of Insurance Finance’s (ANZIIF’s) Insurtech Conference. KPMG also undertook research on behalf of the NSW Government to investigate what other countries were doing to enable fintech to flourish.
The joint research noted the importance of a dedicated ecosystem to promote innovation and growth, as can be observed in the UK and Singapore where governments proactively encourage investment in early stage companies. To that end, the Sydney-based fintech hub Stone and Chalk was created with seed funding from the NSW Government and 20 other industry participants. KPMG are a founding partner of Stone & Chalk.
KPMG also hosted the inaugural Insurtech meet up in the last quarter of 2016 as a platform for incumbent and emerging tech companies to share perspectives on the opportunities and challenges in the industry.
“There’s a big opportunity for Australian insurers to become more involved in insurtech. Australia has one of the highest levels of engagement with mobile digital devices per capita in the world. This country could be a testing ground for the prototypes of those mobile solutions, which would allow the local industry to innovate much faster,” Blake says.
A version of this article was first published by ANZIIF and authored by Anna Game-Lopata.