The Best InsurTech May not be InsurTech

By Jannat Shah Rajan
Venture Capital Investor, AXA Strategic Ventures
InsurTech is broader than meets the eye, or proper noun in this
case! Some might like to segment InsurTech from FinTech, and
perhaps rightly so – FinTech has been associated thus far with
banking activity: payments and foreign exchange has certainly
evolved in the past two decades, during which time it is fair to say
that InsurTech was neither a buzzword, nor was there much by way
of advancement in the insurance industry. A wave of comparison
websites emerged in the early 2000s,1 as did strong niche non-life
insurance brands such as Direct Line in 1991, followed by esure
and Churchill in the UK, but none of this propelled the industry –
price comparison and competition (all else remaining equal) could
only lead to compressed combined ratios and compromised
bottom-line performance, industry-wide. But for me, “financial
institutions” encompass insurance companies since insurance
is a financial arrangement, and naturally includes banks, asset
and wealth managers, and all other participants in the financial
industry. And so, for me, InsurTech, is a subset of FinTech, but
we should be clear on what InsurTech literally means. It’s about
solving the problems of the US$5 trillion insurance industry2 and
innovating for the future of the industry. InsurTech players can
either be directly active in the industry, or can equally provide
services in and around it that make the experience of insurance
a better one, not just for the customers but also for the providers.
Banking kicked off its digital revolution first, but a deposit-taking
institution has not nearly as many concerns as one who prices and
takes on risk.
The Problems and Challenges of
the Insurance Industry
The insurance industry is ripe for disruption and ready for
evolution for a variety of reasons: consumer expectations, legacy
systems, demographic changes, and – at least on a non-life
and health basis – changes in consumer behaviour with respect
to underlying assets. The new generation is moving away
from asset ownership and the advent of customer-to-customer
(C2C) marketplace models is enabling this. Even changes in
the way people work means that remuneration and benefits are
changing. There are numerous places in the value chain where
technology can have an effect including: distribution, pricing and
underwriting, big data for better risk models, claims handling, and
reinsurance.
Incumbents and newcomers have an interesting dynamic in
the insurance sector. While, in other industries, technological
advance and new business models leapfrog and displace
respective incumbents as the product or solution of choice,
for example, entertainment streaming versus DVDs and
VHS, the same thing does not happen in the insurance sector.
Why? The regulatory environment is certainly a protective
moat for top-tier insurers and a barrier to entry for InsurTech
newcomers. To be a full-stack insurer, meaning one that does it
all – the customer acquisition, the risk pricing, the underwriting,
the claims processing – one needs to be backed by a balance
sheet of regulatory capital. This cannot be built up overnight,
but there are plenty of incumbents with the necessary capital
that has been built up patiently over decades, even centuries.
Incumbents are the best testing ground for new InsurTech
propositions – they already have the capital and reserves,
industry access and know-how, and a customer base that they
are looking to retain.

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