Collaborate and conquer

“Not so long ago, carriers were wondering if insurtechs would be friends or foes,” says Lorcán Hall of Hannover Re. “When insurtech started gaining momentum around 2015, it seemed more confrontational than cooperative. The rhetoric was certainly challenging, with much talk about fixing a broken industry and taking on incumbents and doing it better.”

Little surprise then if traditional insurers felt threatened. Disruption was the word on everyone’s lips, and there was no ignoring the way technology had transformed industries such as retail and travel. More telling still was the impact of fintech across banking and financial services. Insurers took heed and feared losing market share to new entrants – insurtech companies with slick technologies and alternative business models.

From disruptor to enabler

“However, the conversation has changed,” says Hall. “After 2017, insurers started looking beyond the disruption headlines and began engaging with insurtechs for mutual benefit. We’ve moved from disruption to collaboration, from a fear/threat scenario to one where insurers and insurtechs both realise the opportunity offered by technology collaborations.”

Hall adds that disruption is perhaps a misleading label anyway, as it belies the positive role of technology. “It’s more useful to think of technology as an enabler, not a disruptor,” he says. “Insurtechs, whether start-ups or large and more mature technology providers, are unlikely to create a new industry. Instead, they will power the data-driven insurers of the future. Their value lies in partnering with incumbents and providing the resources and tools to improve the way insurance is delivered. In other words, they can make insurers more efficient and competitive by reinforcing rather than undermining their role.”

As Hall explains, because insurance requires significant capital, it’s not easy for start-ups to simply walk in and take over from incumbents. Insurers need to cover potentially huge claims, so not even the most heavily funded insurtechs can break the mould with technology alone. Indeed, many of the most high-profile insurtechs, such as Lemonade and Root, cede a significant portion of the risks they underwrite to reinsurers.

“There’s also the twin challenge of regulation and customer acquisition,” says Hall. “Insurance is so heavily regulated, it’s hard for newcomers to negotiate the complexities as smoothly as incumbents do. As for acquiring customers, which is where traditional insurers excel, you may have great technology but that doesn’t mean you have a sure-fire customer base. If you’re Amazon or Google, maybe, but you still face the regulation challenge.”

Pivot: the new buzzword

Slice and Trōv illustrate how cooperation is replacing disruption, reflecting a new industry term – ‘pivot’. Because insurtechs have found it difficult to compete head on with incumbents, particularly in view of the cost of customer acquisition, and insurers have discovered the benefits of working with insurtechs, they are now finding the middle ground.

“Some insurtechs such as Trōv and Slice have done full pivots,” says Hall, “shifting from B2C to B2B. That’s because they realise it’s more profitable to be a supplier insurtech supporting established insurance companies with their digital products and services. Disruption, in its new guise, means the ability of traditional insurers to change how they compete with each other thanks to the application of insurtech.”   

Shaping the future of insurance

As insurtech matures, its potential is being realised on a much wider scale, across more parts of the insurance value chain, and new models are emerging that are based firmly on insurers and technology providers working together. A good example is Uncharted, a Vancouver-based insurtech whose platform makes a virtue of collaboration.

“We are building the infrastructure that connects the insurance market,” says Uncharted’s CEO Nick Macey, echoing Hall’s view that technology must enable insurance rather than disrupt it. “As the world moves online, new data sources are emerging, risks are changing, and brokers, insurers and reinsurers are looking to technology to enable them to collaborate and address these opportunities.”

What Macey is describing is the latest evolution of insurtech, a collaborative model that opens up many new partnership possibilities for the benefit of the entire insurance community. “As the insurance market continues to consolidate, being a technology-enabled broker, agent, carrier or reinsurer has become table stakes. Customer expectations for user experience at point of sale and for service are increasing, the costs and time to move legacy infrastructure into the cloud are significant, and the ability to innovate on product and distribution at speed has become critical,” says Macey.

“The Uncharted Cloud is a Platform as a Service that enables insurtechs, insurers and brokers to collaborate and deliver any product, through any channel, in any market, regardless of where they are on their digital transformation journey,” says Macey. “PaaS means we can expose a suite of APIs that enables insurance to be embedded directly into platforms and ecosystems without the drag from legacy systems and supported by integrations into modern platforms, including payments, CRM and analytics.”

Macey says that the direction of travel is now clear, and that insurtech should be placed firmly in the enabler camp. “The opportunity for insurtech is to collaborate with the industry to enable it to do what it does best: leverage data to create customer value, underwrite portfolios effectively and drive product innovation,” says Macey. “At Uncharted, our vision is to build the core insurance infrastructure that connects the insurance market with a suite of APIs and cloud-native services that powers the next generation of insurance and insurtech.” 

Big tech, big challenge?

Some would say there is still a threat from big tech, the Silicon Valley giants who may harbour ambitions to become full-stack insurers. Certainly, there have been forays into insurance from FAANG members. Facebook, Amazon, Apple and Google continue to explore the marketplace, while the ‘Netflix effect’ is often cited as an example of the transformative power of technology. And then there is Tesla, another big-tech company, which uses data-driven insights to provide insurance for its vehicles. So, will big tech’s data and data science drive the next wave of disruptors?

Hall believes that traditional insurers will always enjoy an advantage because they are industry 'natives'. "Insurance depends on people and established processes as much as big data, artificial intelligence and cloud computing," he says. "But digitalisation will continue to play a growing role in insurers’ top- and bottom-line performances, which is why they do well to view insurtechs as collaborators and enablers.”