Thomas McCourtie, analyst, general insurance at Verdict Financial, argues that although technology poses a threat to the insurance services and propositions offered by incumbents, insurers need to be aware that partnering or collaborating with those looking to innovate offers many opportunities.
Many sceptics are aware of the threat technology poses to the current financial services space. For insurance, an industry steeped in tradition, the threat is even more prominent, and amplified to such a scale that the potential benefits are often masked or unidentified.
Insurtech start-ups have talent, technology, and – since the introduction of EU directive PSD2 – access to customer financial data, meaning they are in a better position than several years ago to launch their own products and platforms.
However, disrupting the marketplace is not easy given the overall costs of developing a proposition, the difficulty of getting to grips with regulation, and the need to gain the requisite customer base to succeed.
On this basis, for start-ups a mutually beneficial agreement or even partnership with an incumbent may be the best option.
According to a Willis Towers Watson survey, almost 50% of insurers expect to acquire new technologies through merger and acquisition activity in the next three years, which suggests the idea of joining forces with insurtech start-ups is appealing.
Around 14% of insurers intend to make more than one acquisition, with big data, robo-advice, and sensors cited as key areas over the next five years.
Utilizing these technologies presents huge opportunities, particularly around maximizing operational efficiencies.
Insurers recognize that the implementation of new tech throughout their business would not only help manage costs, but also streamline certain processes to significantly enhance the customer experience – an area where many insurers fall short and are being superseded by tech groups including the Silicon Valley giants.
According to a survey conducted by consulting firm Accenture, approximately one in three banking and insurance customers globally would consider switching their accounts to the likes of Google, Amazon, or Facebook if they offered financial services.
This is due to the unprecedented standards of customer experience and personalization offered by these platforms. Currently, consumers look at insurers and see a gap in the services they offer.
Despite this, insurers remain relatively sanguine about the threat they pose, with just 8% seeing new entrants from the technology sector as likely to disrupt their marketplace according to the Willis Towers Watson survey.
However, it is important that insurers contemplate the pros as well as the cons of new technology. Incumbents and start-ups alike must be aware that a new tech-based proposition may not be as successful without an insurer as the risk carrier at the “back” of the service, and vice versa.