Majority InsurTechs not aimed at disrupting, rather enabling insurance industry: InsurTechQC

The majority of InsurTech companies are not aimed at disrupting the insurance industry, but are rather enabling insurance companies to add value and improve their bottom line.

Speaking at the InsurTech Quebec City conference, the first of its kind hosted by the City at the Port of Quebec Terminal on Monday, Henk Broeders, senior partner at New York-based world-wide management consulting firm McKinsey & Company, said that 60 – 90 percent of all InsurTechs today are offering a value-added service to insurance companies to improve the way they do business and increase profitability.

“Only nine percent are truly disrupting the full value chain, compared to 61 percent enabling the value chain,” Broeders said in his keynote address, entitled Insurtech: a threat that inspires. He noted peer-to-peer insurance company Lemonade as an example of a truly disruptive threat.

“A further 30 percent disintermediate customers, providing an opportunity for insurers similar to aggregators, and can provide an extra channel of growth. Or, they might turn out to be a serious drag on margins. We [therefore] see InsurTechs as more of an opportunity than a threat to the industry.”

More than US$2.5 billion has been invested in the 1,500 to 2,500 InsurTech companies across the world in 2015, Broeders noted. On the P&C side, the majority of these companies are concentrated in distribution (17 percent), followed by pricing (10 percent), product development (8 percent), claims (7 percent) and marketing (4 percent), according to his company’s research.

Most InsurTechs are retail focused, and driven by customer-centricity, he added.

Five key drivers

Broeders said that InsurTechs are driven by five key factors that differentiate them from incumbents: increased connectivity, targeted product concepts, full automation, and data-driven decision making and insights. InsurTechs are different in that they are:

• Leveraging social engagement, like gamification and peer-to peer insurance.
• “Digital by default” in four ways: developing new customer value propositions and products, with products “simply being more adapted”, using full digital distribution for online sales and service, leveraging advanced analytics, and having strain-free sales and services processes.
• Early adopters of new tech, including big data machine learning and cloud based solutions – the two most leveraged technologies in this space.
• Agile: InsurTechs are typically younger (45 percent of InsurTechs are less than three years old), leverage the most modern technology tools, are less hierarchical, and have an entrepreneurial DNA.
• Focused business goals: they focus on a particular aspect of the value chain, whether it’s claims, service or distribution.

P&C in Canada lagging behind

Broeders said that, when it comes to working with InsurTechs, the P&C industry in Canada is still in the early adoption stage.

“In the Netherlands, for example, 75% of car insurance is done online, from quote to bind. Currently, there is only one insurance player, Sonnet, in this space in the Canadian market.”

Allianz insurance has adopted digital the most, with an investment of one billion euros in the next three years, on their quest to become 100 percent digital, Broeders said.

Disruptors in other industries are creating many questions for the insurance sector, he said, specifically what it will mean for underwriting. “I believe both supply and demand will be disrupted, but insurance itself will largely remain the same. Will disruption give birth to what we call a ‘hyper-scale platform’, like world-conquering Uber and AirBnb? I don’t think so, because insurance is still highly regulated.”

The nature of InsurTech as regulators scratching their heads, Broeders said. “It’s a capacity issue. How do the keep track of the amount of new, borderless players in the marketplace, the pace of change and agility. Can AI actually legally give advice? Who owns IoT data? These are discussions Canada has to have, or InsurTechs will move to other countries.”

Insurance responding

Despite regulatory constraints, Broeders said many insurance companies are trying to understand the landscape by participating in innovation efforts, like hackathons. “Others take it a step further and engage with InsurTech startups, investing in incubators. Others act by acquiring InsurTechs and adopting their values, setting up digital garages for example and building echo-systems.”

Broeders said insurance companies need to understand that customer expectations are changing in six ways: customers want personalized products; personalized coverage models and solutions; to be coached; holistic financial advice; convenience and instantaneous insurance; to be engaged. “The latter is a particularly high bar for insurance companies,” he said.

*Conference coverage made possible by InsurTechQC

This story was originally published by Canadian Insurance Top Broker.