There’s momentum behind insurtech with deal values and volumes continuing to rise rapidly. It’s a catalyst for action by incumbent insurers – but this plays out as ringfenced and isolated initiatives. A fundamental step-change is needed to engrain innovation at the core of the business.
I’ve been working with fintech start-ups as part of Accenture’s London Fintech Innovation Lab and in the past ten months alone have seen our 2017 cohort of insurtech start-ups raise over $5m in funding – not surprising if you consider that, according to Accenture’s analysis of CB Insights, $8.7bn has been invested in insurtech since 2010.
The rapid increase in the value of deals is fuelling momentum behind the insurtech movement. When coupled with the waves of disruption delivered by the likes of Lemonade and Trōv, this has served as a catalyst for insurers, such as Hiscox, L&G, LV= and AXA, to partner with insurtechs that complement their core business.
Undoubtedly, insurtech and the disruption it brings have a significant role to play in shaking up the market to foster innovation, but it shouldn’t be treated as a silver bullet. Simply making space for insurtech to supplement the legacy business won’t sufficiently bring about the fundamental step-change needed to unlock new sources of growth. Instead, insurers must lean into the challenge without fear and take the opportunity to formulate an innovation strategy which transforms the core business and better understands, anticipates and adapts to customer needs.
The key starting point is to inspect the insurance value chain and assess whether insurtech is appropriately leveraged across the operation to deliver maximum efficiency and productivity. The evidence suggests that a refocus towards areas of the value chain underserved by insurtech initiatives will bring about the innovative behaviours needed to meet growing demand for a new degree of customer relevance.
Accenture’s analysis of CB Insights data highlights a disproportionate focus by insurtechs (from 2010 – 2017) across the insurance value chain:
54% Marketing and Distribution
17% Operations and Servicing
13% IT and Risk support – (software solutions and risk management tools)
3% Propositions that support the end to end value chain
Marketing and Distribution – I’m not surprised to see that over half of insurtechs gravitate towards the marketing and distribution end of the value chain – it’s the public-facing element of the insurance company, where many entrepreneurs will have played customer, and the visibility can be seductive. Insurtechs positioning themselves here use sophisticated algorithms and AI to make relevant cover recommendations to customers, and in doing so build worthwhile customer experiences. What I am surprised to see though is low penetration of insurtech initiatives in both the claims and underwriting operations.
Underwriting – Big data empowers insurers to streamline the underwriting process, allowing for smart and accurate pricing that can be determined in real-time by leveraging the Internet of Things to collect information from the customer’s connected devices.
Claims – In turn, these data insights can reduce the frequency of claims, allowing the insurer to step in earlier to mitigate risks or at the point of loss to reduce the impact. Perhaps this is due to a misclassification of some insurtech deals – we know that SalesMove and Xtract 360 are making moves in this area. The latter utilises telematics data to create 3D reconstructions of motor crashes. It serves these to both the customer and the claims handler for complete transparency during the claims process, and to provide a new touch point to build trust with the customer.
Outside of the pure insurtech world, when I’m working with insurers on their transformation journey, I see again and again that the foundation of a successful transformation is the product that underpins it. However, these transformations often don’t have the impact on the innovation agenda that they could – there is a sense of ‘updating the existing’. We could see change here if insurers were to incorporate the product and service offerings of insurtechs into their own products and therefore initiate core transformation – a cross pollination which would help insurers tackle issues around the customer experience and product innovation. For example, an alumnus from Accenture’s London Fintech Innovation Lab, Kasko, offers rapid digitisation of any insurance product and distributes this to customers directly at the point of demand. The key to its success is the ability to test and learn with fast deployment of newly developed products, pushed to customer sub-segments for testing.
The very construct of the product will dictate the approach to underwriting, pricing and market positioning. Ultimately, technology will play a vital role in building tailored, relevant and meaningful insurance products, which naturally leads to innovative engagement practices with customers.
To read more about how insurtechs are a catalyst for change in the insurance industry, take a look at our latest point of view: FEARLESS INNOVATION: Insurtech as the catalyst for change within insurance.
Over the course of my next few blogs I’ll dive further into this topic. Could a refocus on other areas of the value chain be the step-change needed to meet growing demand for a new degree of customer relevance?