Why Insurtech is disrupting the insurance business

The insurance industry has been resisting the wave of technological innovations globally transforming economies and societies. The technological modernization of financial services (“Fintech”), agriculture (“Agrotech”), health (“Healthtech”), education (“Edtech”) and many other industries is clearly noticeable in everyday activities of these businesses. But this modernization is not clear in the insurance business (“Insurtech”).

Few initiatives have structurally impacted the foundations of the insurance business as we know it, for decades. Customers don’t experience real changes in their interactions with insurance companies, frustrating the expectations of relevant improvements in their experiences, which are founded on their daily interactions with other industries and companies, as the “tech giants”. It is becoming less and less comprehensible to customers the reasons why insurance incumbents don’t provide the same level of convenience as the GAFA.
Insurance is not a business of selling policies or claim settlements, but rather a creator of “peace of mind” at every moment of the clients lives. This noble and indispensable function has not been completely fulfilled by the majority of insurers, besides the resources and tools that are available to insurance companies.

Several reasons explain the slowness of the technological modernization in this industry. First of all, insurance companies are victims of their own success. Many years of good results have been sustaining the idea that the traditional way of doing business is the correct one. Therefore, the investment in disruptive business models, brought by the Insurtech initiatives, is just an alternative option, that must be followed and tested, but not as a core strategy.

Insurtech investments have, by its own nature, a high level of financial risk and that may jeopardize the traditional operational and commercial activities of incumbents. It generates disruption and destabilization to the equilibrium of forces that are established in mature insurance markets.

Secondly, the fiduciary characteristic of this activity is reflected in the conservative culture of the companies. It is very important to incumbents a strong reputation of consistency and predictability. But it is also a strong inhibitor of technological innovation. It decreases the error tolerance which is an essential component of the innovation processes. However, these circumstances that have justified the low priority given to technological modernization in the insurance industry have been losing its economic and social rationality.

The amounts invested in Insurtech, over $ 3 billion annually, will soon start to change this industry as we know it. Even if only a portion of these investments may generate prosperous and competitive businesses, those are enough to attract the customers that recognize the importance of insurance but demand a higher level of convenience.

The “sharing economy” is another relevant factor that will accelerate the technological modernization of insurance. Its fundamentals are based on the principle that customers prefer to use the goods or services they need at the moments they need them, without having to possess them.

The reaction of the insurance industry to this new tendency remains distant and apathetic, developing products that are not adequate to safeguard the risks of these customers. In some sectors, the lack of good insurance solutions is already becoming a bottleneck to the development of new “shared” approaches and to the creation of Insurtech investments to create innovative solutions for the gig economy.

Finally, the competitive pressure exerted by insurers who, alone or through partnerships, entered the Insurtech era, is increasing. The benefits that new projects and partnerships have been generating, in terms of efficiency, flexibility, speed and accuracy, are becoming more and more evident.
Insurtech is already a one-way strategic path in the insurance business. Incumbents have no alternative if they want to preserve its competitiveness, to introduce new technologies, such as artificial intelligence, internet of things, analytical processes and blockchain in their processes and operations.

By Manuel Leiria (manuel@manueloninsurance.com ) who is the founder of consulting firm Manuel On Insurance, specialized in Insurtech.
Manuel Leiria (manuel@manueloninsurance.com) is the Insurtech WorkGroup Coordinator at Portuguese Fintech & Insurtech Association. Manuel is a regular speaker about insurance trends and innovations, and the founder of consulting firm Manuel On Insurance, specialized in Insurtech.

https://manueloninsurance.com/

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