Global investment in insurtech is growing at a rapid pace, with the number of deals and the value of funding rising year-over-year, but consumers won’t experience the benefits of the technology until insurers rethink their innovation strategy.
Insurtech is in good health, according to Accenture’s analysis of data from CB Insights. The number of insurtech deals in 2017 rose by 39 percent compared to 2016, and the total value of funding reached US$2.32bn – a 32 percent increase on the previous year. In spite of this activity, the way the insurance industry currently views and leverages startups makes them far less effective – as a force for transformation and innovation – than they could be.
One reason for this is that the industry still needs to address some basic but long-standing issues (in terms of poor customer experience, for example) before insurtech can really start to bring real innovation to the mainstream industry or to everyday policyholders. What’s more, some insurers appear to expect the insurtech movement to deliver 100 percent of the changes that are required, whereas they should instead be looking to insurtech to set a good example and indicate the way ahead. And it’s not simply about delivering radical innovation. Leveraging startups to help improve existing core processes and reduce traditional frictions in the value chain will be just as important.
As much as it can play a role in helping insurers transform and grow their existing businesses, insurtech is not the only tool in the innovation toolbox. Insurers thus need to think more broadly and strategically about their innovation agendas. They need to become more fearless in their approach to change, and ensure they have the proper architecture in place to support and nurture innovation across all parts of their business.
Part of the industry’s reluctance to embrace innovation as part of ‘business as usual’ comes down to a fear of change and an understandable aversion to risk. For some insurers, dipping their toes into insurtech—either alone or through a hosted accelerator program—can offer an effective and relatively safe introduction. Yet it can also enable them to put a brave face on their fears and avoid making substantive strides towards innovation.
With these realities in mind, here are five lessons that insurers can learn from the insurtech explosion:
- Focus on delivering ‘brilliant basics’, and then use those as the foundation for driving more fundamental innovation. Leverage startups at both ends of this spectrum, and everywhere in between. Without getting the basics right, insurtech will continue to be on the fringes.
- Truly understand customer expectations, how they are evolving, and how they are being driven by people’s experiences in other industries. Not only do the startups have an excellent view of this, but many of them are run and staffed by relatively young consumers, and so they have an inherent feel for next-generation insurance customer preferences.
- Become fearless. There’s a difference between being risk-aware and being risk-averse. Learn from startups’ own attitudes to risk and their willingness to fail in order to succeed. There are easy approaches to ‘test and learn’ that startups regularly adopt, and insurers can benefit from these – conducting staff pilots, or targeting the iPhone app customer segment (recognising that such customers are used to experiences that are not fully-proven), for example.
- Ensure you have the right, end-to-end innovation structure in place to support and deliver your innovation agenda. Collaborating with startups is just one part of this process, and ultimately innovation needs to become engrained throughout the organisation.
- Combine multiple startups (including those from beyond the insurtech space) into ecosystems to jointly solve some of the biggest challenges facing the industry. Market boundaries are becoming increasingly blurred – the advent of Open Banking and the shift towards an Open Insurance (and eventually a truly ‘Open’) ecosystem is happening.
The insurance industry requires wholesale change, not just a sticking plaster. Happily, the insurtech movement and its bold startups can act as an invaluable catalyst for this transformation. The goal shouldn’t be to have all the fresh talent, ideas and energy tied up in startups; it should be to incorporate those much-needed qualities into the mainstream insurance industry, to deliver innovation at scale, and to help insurers rotate to the new.
To read more about how insurtechs are a catalyst for change in the insurance industry, download our report: Fearless Innovation: Insurtech as the catalyst for change within Insurance