Almost half (48%) of insurers fear that up to 20% of their business could be lost to standalone FinTech companies within the next five years, says a new PwC report.
The report, Opportunities await: How InsurTech is reshaping insurance, said annual investments in InsurTech start-ups have increased fivefold over the past three years, with cumulative funding reaching $3.4bn since 2010.
Over two-thirds (68%) of insurance companies say they have taken concrete steps to address the challenges and opportunities presented by FinTech.
PwC surveyed management from 79 insurance and start-up companies across the globe to gauge how the industry is responding to this opportunity to transform the market.
Culture of innovation
Stephen O’Hearn, global insurance leader at PwC, commented: "Insurers need to encourage a culture of innovation and creativity within their organisations to ensure that the progress being made is not squandered.
"There is a risk of missing an opportunity to deliver customers a similar experience to one they already receive from retail and technology companies. One size simply does not fit all in insurance anymore and, by working alongside InsurTech companies, companies can begin to reposition themselves at the cutting edge of customer interaction."
PwC highlights four steps insurance companies can take to make the most of the InsurTech revolution:
- Exploration – savvy incumbents are already monitoring new trends and innovations and establishing a presence in innovation hotspots such as Silicon Valley, Singapore and London
- Strategic partnerships – partnerships with start-up companies and building pilot solutions will become increasingly popular amongst insurers who wish to see first-hand what creativity can offer them
- InsurTech involvement – start-up incubators and strategic acquisitions are efficient ways for insurers to address specific problems, which otherwise would take far longer to tackle
- New product development – by listening to and interacting with start-ups, incumbent insurance companies will discover current and emerging risks and coverage needs – they should focus on adapting and refining their product portfolios in response
Threats and opportunities
- Pressure on margins (73%) and loss of market share (69%) are highlighted by insurance executives as the top threats InsurTech poses to the industry
- Cost reduction (81%) and differentiation (65%) are highlighted by insurers as the most significant potential gains from InsurTech
- Incumbent insurers see IT security as the biggest barrier to working alongside start-up companies. The start-ups themselves highlight ‘difference in management and culture’ as the biggest challenge in the relationship
Jonathan Howe, UK insurance leader at PwC, commented:
"The differences between start-ups and incumbents should be embraced as both are vital to the future of the industry. If the long-term mindset and experience of insurance companies can successfully be partnered with the creativity and agility of start-up companies, the industry as a whole will make progress in solving problems and bringing truly innovative products to market."
Life Insurance International’s innovatiom forum – 17 Nov 2016 – London
To encourage a culture of innovation and creativity in the global life and health insurance market, Life Insurance International (LII) will host a half-day innovation forum on 17 November in London.
Details and the agenda for the event can be found here: http://www.lifeinsuranceinternational.com/event/life-insurance-international/