Fintech is the current darling of the start-up world, attracting $2.4bn in Venture Capital investment in Q3 2016 alone. And within Fintech, it’s insurance start-ups that are attracting some of the most buzz.
The excitement in part stems from the insurance industry being less successful in digitalising its customer experience than other financial services sectors. The lack of digitisation has opened it up for disruption. And the experts agree, with the 2016 PwC Global Fintech Report predicting that up to 22% of business is at risk from insurtech start-ups by 2020.
So, should traditional insurance companies be worried? The short answer is “yes”.
The longer answer is “yes, but only if they keep operating as they currently do, don’t learn any customer experience lessons from start-ups and don’t collaborate with them on new technologies”.
The threat of insurtech
The threat posed by insurtech doesn’t arise from them having newer apps, or chatbots that are more engaging. It’s much deeper than the surface sheen of highly-polished UX.
The real threat is that they are able to combine sophisticated technology with a customer-first service approach that offers customers the transparency, flexibility and convenience that they demand.
How they do this is often through smart technology, yes, but technology is not their key differentiator. What sets insurtech start-ups apart from most traditional insurers is a single-minded focus on the customer, rather than their own bottom line.
Turning the threat into an opportunity
As a sector, insurtech’s approach to customer-led design, nimble product evolution and use of cutting edge tech, gives it an advantage that most established firms may struggle to match.
But why would traditional firms want to match their approach?
Traditional insurers have a significant advantage on these upstarts. They have brand equity (for better or worse), existing customer relationships and data. Heaps and heaps of data.
This is the stuff of insurtech dreams and the reality is that most will never reach that scale. However, if traditional firms do not address the positives arising from insurtech market entrants, they will be opening themselves up to insurtech firms capturing large swathes of the growing Millennial market.
There are three ways that existing insurers can use their inherent advantages and turn the insurtech threat into an opportunity:
1) Partner with insurtechs
2) Invest in insurtechs
3) Adopt customer-led design
1. Partnering with insurtechs
Amongst the swathe of B2C insurtech start-ups that are currently looking to take a bite of the traditional insurance industry’s market share, there exists another type of insurtech organisation. Friendlier insurtech. B2B insurtech.
Companies like Spixii, which offers Artificial Intelligence chatbots and Claimable, which offers a SAAS claims management tool, are enabling established insurance businesses to incorporate cutting-edge tech without the burden of developing it themselves.
2. Invest in Insurtechs
According to Gartner research, 64% of the world’s 25 largest insurers have recognised the opportunity of partnering with an insurtech firm, by:
- Acquiring a business – purchasing the intellectual assets and hiring the resources of an insurtech.
- Investing by obtaining either a minority or majority share, either directly or via a VC arm.
- Incubating e.g. asking insurtechs to compete to get into a start-up accelerator; mentor them; and give them a space to work and exchange ideas.
By investing in insurtechs in this way, established insurers can ensure that they are well-positioned to benefit from any technology developments and that erosion of their overall marketshare is minimised.
3. Adopt customer-led design
We can see from the level of investment from top insurance companies that they are aware of the potential of insurtech start-ups, and want to ensure that they are part of the exciting growth that they offer.
But it’s not just the technology that established insurers should be taking on board when they invest in insurtech.
Insurers also need to learn from insurtech’s single-minded focus on customers – ensuring that they are providing customers what they want, when they want it, through the device they want to use.
This can be a big challenge for an established business, but it isn’t one that needs to be taken on organisation-wide at the same time. One part of the customer experience can be tackled at a time, with research used to decide where this initial work should be focused to deliver the most value to customers possible.
If established insurers can emulate insurtech’s customer-led service levels and partner with start-ups to ensure that they can compete digitally then insurtech can be changed from a disruptive threat to an exciting opportunity.