Innovative technologies and business models are changing the way people think about insurance — giving rise to new products, services and opportunities to enhance customer value.
Investor interest in insurtech, the cutting-edge technologies helping to change the face of insurance, is exploding, and is poised for more growth in the year ahead.
For companies in the insurance industry, innovation is no longer a choice; it is an imperative. Consumers themselves are demanding better options. They recognize the new value they are receiving as a result of innovations in banking and other sectors, and they want their insurance providers to give them the same level of value and customization.
Companies that are unwilling or unable to embrace innovation as a means to respond to the demands of their customers will quickly become irrelevant.
Insurance companies have recognized the importance of innovation for the last several years. A reflection of the growing significance being placed on industry transformation has been the rapid rise in venture capital (VC) investment in insurtech globally, much of which has involved corporate investors.
In 2015, VC investment in insurtech was US$590 million — a considerable sum compared to 2014’s US$404 million. In 2016, however, investment in insurtech skyrocketed, doubling the previous year’s investment total to break the US$1 billion mark by a significant margin.
As insurtech companies mature and show success, investments in insurtech will likely continue to grow, leading technologies to evolve even more rapidly. This will only put more pressure on insurance companies to either embrace innovation or find ways to take advantage of what other companies are doing.
In the banking sector, fintech innovation over the past few years has led somewhat to a dissolution of the banking value chain. Any number of technology startups have shorn off a part of the banking operations (e.g. payments, lending) and developed niche, tailored service offerings for either businesses or individual consumers.
The insurance industry is now facing a similar dissolution, with insurtech companies looking to unpack different areas of the insurance value chain in order to create business opportunities. Many traditional insurers recognize they need to up their game in order to respond to these challenges without losing market share. For these companies, one of the strongest opportunities presented by insurtech is the ability to disrupt and enhance the insurance business model; for example, by opening new channels for insurance products, by speeding up the claims processes or by providing mechanisms to tailor insurance products based on data analytics. Insurers willing to work with insurtech companies on these types of initiatives rather than seeing them simply as competition will be in the best position to respond to the rapid evolution of the industry.
Recognizing the value offered by insurtech companies and being able to take advantage of the opportunities they present are two very different issues. Each traditional insurance company needs to independently determine how best to approach insurtech given their unique circumstances and situation. As a starting point, companies should consider the following activities:
As insurance companies look to understand and take advantage of insurtech, insurance-focused technologies will continue to evolve. Focusing only on what’s hot right now may mean insurance companies lose sight of what opportunities might be right around the corner. Keeping abreast of evolving trends in insurtech is critical to the long-term ability of insurance companies to compete. Looking ahead over the next 12 to 24 months, some trends to watch include:
Insurers today need to do more than understand the importance of innovation and the opportunities presented by insurtech companies — they also need to be able to leverage and integrate insurtech solutions within their own enterprises if they are going to grow and be sustainable. While insurance companies face significant challenges, those able to make the most out of working with insurtech companies — whether through acquisitions, direct investments, innovation labs or services agreements — will be well positioned to be industry leaders in the years to come.