Insurtechs ‘hitting this wall called regulation’

Despite the hoopla over insurtech, the Amazon model of commerce is not about to replace the broker any time soon, analysts with A.M. Best Company Inc. told Canadian insurance professionals.

“A lot of what these insurtech companies are getting to realize is that they hit this wall called regulation. They have never heard of it before,” said Anthony McSwieney, senior financial analyst for life and health at A.M. Best, on Sept. 13 during the 13th annual Insurance Market Briefing – Canada.

“Think of Facebook. Think of Amazon. Think of Google. They kind of operate independently and the government was only recently trying to get involved in their stuff. Now you are trying to sell an insurance product? It’s a game stopper,” McSwieney said during the briefing at the Sheraton Centre across Queen St. from Toronto City Hall.

McSwieney alluded to the fact that regulators require insurers to maintain capital on their balance sheets.

Although McSwieney spoke during the life portion of this year’s brief, he suggested his comments also have some interest for the property and casualty industry.

“We have seen the pace of innovation quicken. We have seen investments in insurtech really take hold in the P&C industry,” said Greg Williams, senior director at Oldwick, N.J.-based A.M. Best, as he kicked off this year’s briefing.

During the life portion, McSwieney said he met with the CEO of a large insurance company – which he did not identify – asking for that CEO’s thoughts on innovation.

“He said it perfectly. ‘We’ve got Amazon, Facebook and Apple over here on this end of the spectrum, and you have banks over here at [the other end] of the spectrum. And way behind the banks you have insurance companies,’” McSwieney recounted.

“If you want to compare insurance companies to these other consumer type products – where you go to Amazon,  you buy something and have it delivered to your house tomorrow – that’s not going to be insurance. For the most part the companies we talk to understand that,” said McSwieney.

As part of their research in assessing insurers’ credit worthiness, A.M. Best analysts meet with management teams from those insurers.

The topic of insurtech “continued to grab headlines through the first half of 2019,” A.M. Best noted in Canada Insurance: Still Profitable Amid Growing Challenges, a report released Sept. 12. The key factors driving insurtech firms include Internet of Things (IoT)and big data.

Insurance providers do need to adapt to changes – such as the new generation growing up on smart phones, said Sridhar Manyem, director of industry research at A.M. Best, during the briefing in Toronto.

“When I was growing up in India, we did not have TVs for a long time. So my parents used to say, ‘Why are you reading fiction? Why don’t you go read school books?’ Then when TVs became prevalent, my parents used to say, ‘Stop watching TV. At least read some fiction.’ Now I have to tell my kids, ‘Stop using smart phones. At least watch some TV.’”

Despite the new consumer expectations of technology, the broker “will likely remain a cornerstone of the industry, though with more evolved responsibilities,” A.M. Best said in the report. Large data sets will make it easier for insurance providers to offer customized products to clients but the clients still benefit from a broker who understands their insurance needs, A.M. Best suggested.

A.M. Best surveyed insurance companies in the United States and asked them to identify new distribution channels under consideration. More than a third (40%) said they were considering direct to consumer, McSwieney said Sept. 13 during the briefing.

“If I go to five different companies, and I ask, ‘how do you define direct to consumer? How to you operate it?’ I will probably get three or four different answers,” said McSwieney, suggesting companies moving to direct-to-consumer still need human agents involved in the process.

“You can only go so far with the true direct to consumer,” said McSwieney. “It’s not just getting a web page setup and interacting with the client. It’s not getting policy information. It’s not just paying your premiums. It’s more than just that.”