Historically a slow mover when it comes to embracing innovation, the insurance industry faced an unexpected disruptor in the aftermath of the 2008 financial crisis: Insurtech. Tapping into the opportunities opened up by cutting-edge technology and the emerging needs of an experience-loyal, digital-native generation, insurtech’s arrival in the 2010s posed a real, existential threat to incumbent insurers. As recently as 2016, a PwC report found that 90% of insurers feared losing their business to a startup.
However, much like banking and Fintech, this fear has largely subsided for insurance as both traditional insurance companies and insurtechs shifted their sights from direct competition to mutual collaboration. Thus, how quickly and decisively incumbents embrace these strategic partnerships may be the key determinant of success in the coming era of insurance.
Insurtech matters in the Digital Ecosystem
Traditional business models are being replaced by next generation ecosystems, and insurers are reimagining their role as orchestrators or citizens of ecosystems that deliver integrated value. Rather than own the end-to-end process of value creation and distribution, successful insurance companies collaborate with others in adjacent sectors to meet the modern era’s demand for an integrated value that fits seamlessly with customers’ daily lives.
Across industries, these partnerships have become a lucrative—and vital—strategy. Given the exponential growth of technology, predicting every odd and end of a hyperdynamic world isn’t feasible. Hence, insurtech is key to driving innovative technology for the insurance industry, as well as ultimately enabling the flexibility and agility necessary for insurers to adapt to and survive the digital revolution.
InsurTech and insurers need each other
The biggest challenge for traditional companies is not only recognizing, but responding to the needs of a younger, more distrustful generation of digital natives. Beginning with Millennials and further shaped by Generation Z, some of these emerging needs include:
- Experience-loyalty over brand loyalty. Consumers trust their peers and social media over insurance agents and brokers, especially when it comes to pricing, user experience, and transaction efficiency. This new generation of customers is not afraid to drop current carriers for one that offers a better experience. In other words, the innovation afforded by newcomers trumps the brand name.
- (Digital) On-demand Convenience above all. Growing up in an on-demand and instant era, today’s consumers want to be able to transact whenever, wherever, and however they want to. SMS, e-mail, and chatbots are a given. If a customer wants to file a claim, they want it done instantaneously in real-time, and without any human interaction if possible. Transacting, above all, must be easy and digitally-enabled.
- All experiences should be personalized experiences. Services should be simple, intuitive, and designed for the individual. The new generation is willing to share data and utilize new technology if it guarantees they’re getting the best deals. From carriers that measure and reward low-risk behavior through wearables, to usage-based car insurance, there’s new expectations for services or plans that have been “made-for-me.”
In many ways, insurtech is an industry built around addressing the gaps and needs of this younger, technologically savvy generation. With a lower cost burden and a tech-first mentality to developing and delivering new capabilities, insurtech is modeled to identify and pursue executable new business ideas at a relentless speed. As a matter of fact, almost all insurtechs have adopted new key technologies and concepts that incumbents have only started to dabble in, such as microinsurance and peer-to-peer insurance. By incorporating insurtech as a key component of the ecosystem, traditional insurers can tap into the innovative potential and technological expertise of insurtech companies whose success has been founded in exceptional, personalized digital experiences.
On the other hand, collaborating with incumbent insurers can provide insurtechs with the capital and historical industry depth they need to make real inroads in the industry. Traditional carriers can also be depended on to accurately underwrite risk, given their wealth of data and experience. With all the regulatory barriers and mandated capital adequacy rules, teaming up is likely a winning strategy on both ends.
Put another way, incumbent carriers can play the role of backers (product, capital, claims payout) in the ecosystem, while insurtechs can play the role of experience innovators that attract and retain loyal customers. By working together in the same ecosystem, both insurtech and incumbents can improve customer relationships, expand revenue channels, reduce losses, and fine-tune underwriting and claims handling.
Nothing ventured, nothing gained: Insurtech as an opportunity
A McKinsey Panorama Insurtech database suggests that 61% of insurtechs today are focused on providing services to insurers by simplifying and digitizing parts of the insurance value chain. Only a small proportion (9%) aims to replace the incumbents. In 2021, it is clear that digital disruption is profoundly altering the current insurance industry model. The question for insurers then is, “are you willing to embrace insurtech as a means of developing the nimbleness and adaptability necessary for the coming era,” or “will you get left behind in the wake of sweeping innovation?”
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