InsurTech – what, where, why?

Read­ing time: 4 mins

Angat Sand­hu out­lines the major sec­tors and geo­gra­phies ‘Insurtechs’ are play­ing in, reveal­ing their poten­tial to impact insur­ance cus­tomer expe­ri­ence, dis­tri­b­u­tion and data ana­lyt­ics, as well as part­ner with and dis­rupt the indus­try.

For the unini­ti­at­ed, InsurTech refers to the phe­nom­e­non of start-ups that are inno­vat­ing using tech­nol­o­gy to fun­da­men­tal­ly enhance the exist­ing insur­ance busi­ness mod­el. At first glance, ‘InsurTech’ appears to be a poor cousin of the much more promi­nent ‘Fin­tech’.

And whilst it is true that the phe­nom­e­non is much more recent and the insur­ance indus­try glob­al­ly still get­ting its arms around the impli­ca­tions of InsurTech, a clos­er look at the num­bers sug­gests that it is rapid­ly clos­ing the gap to Fin­tech and sig­nif­i­cant growth is expect­ed going for­ward.

Why now?

The insur­ance indus­try has many of the char­ac­ter­is­tics that start-ups and ven­ture cap­i­tal firms look for:

  1. Lack of cus­tomer cen­tric­i­ty – very few inter­ac­tions (let alone mean­ing­ful inter­ac­tions) with cus­tomers every year
  2. Fail­ure to embrace change – The indus­try has prid­ed itself on many hun­dred-year-old tra­di­tions and as a con­se­quence not embraced change. Till recent years, benign macro­eco­nom­ic envi­ron­ments and invest­ment income have cov­ered for declin­ing under­ly­ing prof­itabil­i­ty and there­fore not felt a strong need for change.
  3. Inef­fi­cient – Relat­ed­ly, the indus­try is very inef­fi­cient, still reliant on man­u­al process­es, has clunky sys­tems and often paper based under­writ­ing.

Whilst high reg­u­la­to­ry bur­den has detract­ed investors and start-ups and still remains a chal­lenge, it at least now is seen as a sur­mount­able and worth­while chal­lenge giv­en the size of the oppor­tu­ni­ty through bet­ter serv­ing cus­tomer needs and improv­ing the effi­cien­cy of the indus­try.

Where are InsurTechs most active?

Geo­gra­phies

~60% of all InsurTech deals in 2016 were in the US and it remains the glob­al cen­tre for inno­va­tion in the indus­try. UK and Ger­many are the sec­ond and third largest hubs glob­al­ly. Inter­est­ing­ly, arguably the most suc­cess­ful InsurTech of all, Zhong An, is based in Chi­na and only a few years after oper­a­tion has a $8BN val­u­a­tion. The InsurTech ecosys­tem across the rest of Asia is still rel­a­tive­ly imma­ture but activ­i­ty and inter­est pick­ing up across Sin­ga­pore, Hong Kong, Mum­bai and Syd­ney.

Sec­tors 

In terms of sec­tors, major­i­ty of the focus (>60% of deals) have been on the Gen­er­al Insur­ance sec­tor, with ~30% focus­ing on mul­ti-line busi­ness and only ~10% focus­ing pri­mar­i­ly on the life insur­ance sec­tor. Part of the dri­ver of that is the long-term nature and addi­tion­al com­plex­i­ty of the life insur­ance busi­ness rel­a­tive to Gen­er­al Insur­ance and the fact that the lat­ter is a num­ber of years ahead in its adop­tion of tech­nol­o­gy. How­ev­er, we expect activ­i­ty and focus in the Life sec­tor to increase mate­ri­al­ly over the next few years.


Value-chain

 

Giv­en the chal­lenges and com­plex­i­ty of run­ning an insur­ance busi­ness, most start-ups have decid­ed to focus on a few parts of the val­ue chain and part­nered with insur­ers and rein­sur­ers. There are many excep­tions to this but bar­ring Zhong An, most of these play­ers are still young and their suc­cess too ear­ly to gauge.

Major­i­ty of the focus of InsurTechs to date has been on three areas across the val­ue chain:

Cus­tomer expe­ri­ence: Focus­ing on sim­pli­fy­ing the insur­ance pur­chas­ing process and engag­ing cus­tomers both at point of sale and post
Dis­tri­b­u­tion: Using dig­i­tal tools to make the sales process more seam­less and effi­cient

Data ana­lyt­ics: Try­ing to use exist­ing and alter­na­tive data sources across a range of appli­ca­tions.

As the indus­try matures, we expect greater focus on oth­er parts of the val­ue chain, includ­ing inno­v­a­tive prod­uct devel­op­ment, claims man­age­ment and improved risk selec­tion.

What is the scene in Australia? 

The Aus­tralian InsurTech scene lags the glob­al and even Asian cen­tres in terms of pace and scale of activ­i­ty. This is start­ing to change rapid­ly, with the num­ber of local InsurTechs now reach­ing ~30 and a num­ber of recent indus­try events and ini­tia­tives pro­mot­ing inter­est and invest­ment in this space. QBE and IAG have both recent­ly announced new ven­ture funds and Sun­corp has been run­ning tri­als with a num­ber of glob­al InsurTechs. More­over, the Aus­tralian mar­ket is of inter­est to many glob­al play­ers who choose to test new con­cepts here before scal­ing in their home mar­kets. We expect the pace of activ­i­ty and response by both incum­bents and glob­al play­ers to con­tin­ue to increase.

What are the implications for incumbents?

The indus­try has been slow to react and those that have respond­ed have done so in three main way:

  1. Estab­lish­ing Cor­po­rate Ven­ture Funds: This is in-effect a mech­a­nism for incum­bents to hedge their bets by scan­ning a num­ber of poten­tial start-ups that could dis­rupt the indus­try and tak­ing small shares in them. Also, the mere process of being on the look-out allows insur­ers to be on the front-foot in terms of lat­est devel­op­ments in this space.
  2. Direct­ly part­ner­ing with InsurTechs: Play­ers are look­ing to learn the cus­tomer expe­ri­ence, tech­nol­o­gy and ana­lyt­ics com­po­nents from start-ups, who in turn are seek­ing tech­ni­cal knowl­edge, com­pli­ance sup­port and impor­tant­ly, access to the cus­tomer. Suncorp’s part­ner­ship with Trov is a good exam­ple of the above.
  3. Estab­lish­ing Inno­va­tion labs: These are efforts by play­ers to inno­vate more organ­i­cal­ly, often by giv­ing InsurTechs ‘office space’, pro­vid­ing men­tor­ing and small amounts of seed fund­ing. Many such labs have been estab­lished both in Aus­tralia and glob­al­ly but are in ear­ly days in terms of real­is­ing impact.

It is still very ear­ly days to declare who is win­ning amongst InsurTechs and the incum­bents. There is no doubt in my mind that insur­ance will con­tin­ue to have a mate­r­i­al role to play in soci­ety pro­tect­ing indi­vid­u­als and cor­po­ra­tions from unex­pect­ed events. The invest­ments over the past cou­ple of years have made it clear that InsurTechs will be a seri­ous force for incum­bents to deal with. Play­ers that embrace this chal­lenge and respond swift­ly will be bet­ter placed to win in the future.

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About the author

Angat Sandhu

Angat is a Partner in Oliver Wyman’s Financial Services Practice and leads their Australian Insurance and Wealth Management practice. He is motivated to improve consumer awareness and trust in these sectors and believes the industry needs to further increase transparency, simplify and make better use of advances in technology and analytics. Prior to joining Oliver Wyman, he worked at Macquarie Group and Towers Watson. He is an Actuary, a holder of the right to use the Chartered Financial Analyst® designation and the Financial Risk Manager designation.

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