Insurtech, a portmanteau of ‘insurance’ and ‘technology’, is a relatively new concept, but when was the term coined? You would be hard-pressed to pinpoint this to a specific place and time as, much like the process of evolution, the emergence and rise of insurtech has been gradual, but the term has been in use for around a decade. Similarly to fintech – new technology that seeks to improve and automate the use of financial services – insurtech essentially leverages technology to improve efficiency and drive advancement within the insurance industry. So what prompted the insurtech revolution? And why was it necessary?
According to Brad Rutta, former Chief Digital Transformation Officer with Generali Global Assistance in the US, insurtech’s emergence is inextricably linked to fintech and emerged to meet consumer demand. “As banking institutions began changing the customer experience through fintech innovations, particularly by leveraging mobile devices to provide self-service functionality, it set forth expectations for all financial services, including insurance, to create user-centric platforms,” he told ITIJ. “So, ultimately, insurtech came about primarily from customers demanding (and rightfully so) simpler and more efficient products and services through digitalisation.”
Rajeev Shrivastava, CEO of VisitorsCoverage, a US-based travel insurance provider, is one of many who believe that this digital transition was a long time coming for the insurance industry. “The insurance industry is already late to the game in adopting state-of-the-art technology for both customer needs and business needs, using technology that syncs well in the ecosystem and value chain,” he said.
Despite being slow to adopt new tech, insurers soon started to make interesting headway in this field. Technology-led companies began to enter the insurance sector in increasing numbers, which at first some saw as potentially posing a threat to incumbents, but it has also presented an opportunity for insurers to partner with startups and ensure that their offerings are aligned with the needs of a changing world. Now, during the Covid-19 pandemic, when the world has been forced to make abrupt and far-reaching changes, insurtech has seen a renewed rise in investment.
With more pressure to provide tech solutions to customers as an alternative to face-to-face contact, there has been an urgency in the demand for the benefits insurtech brings. Insurance Business recently published its Special Report: Insurtech 2020 in which it stated: “If the Covid-19 pandemic has demonstrated anything, it’s that almost anything can be done online, including insurance transactions.”
In addition to the startup influence, when insurtech began to see real traction, there were – and are – a number of insurtech solutions that have been developed by incumbents, as Yuri Poletto, an Italy-based insurance and insurtech consultant, highlighted: “Typically, the concept of insurtech is associated with startups, but this is limitative. Two examples of solutions that have been developed by incumbents are VitalityHealth, one of the most successful insurtechs, which was developed by South African insurer Discovery, and Penn Mutual, a 172-year-old life insurance company, which in 2018 rolled out what it calls the Accelerated Client Experience, a digital platform that streamlined the application process and decision-making time from an industry average of 30 days to as little as 24 hours.”
Rafael Senén, CEO and Co-Founder of CoveronTrip in Spain, is also keen to emphasise that the insurtech revolution does not necessarily mean insurtech startup revolution: “Incumbent insurance companies, large brokers and many other big and traditional insurance industry players are innovating too, and the innovation ecosystems are numerous.”
There’s a huge disconnect between current insurance experiences and millennial consumer expectations
There are a number of improvements that insurtech facilitates. For example, Rutta believes that insurtech is enabling insurers to undergo a positive transformation. “It’s a fundamental change for insurance as we look to leverage technology to better serve our customers and improve operational efficiency,” he said.
Poletto suggests that insurtech affords insurers the chance to expand their offering: “It represents an opportunity for insurers to review their role and evolve from ‘claims payer’ into ‘provider of integrated solutions to protect people and businesses’.”
Shrivastava agrees that insurtech represents more than embracing technology: “For us at VisitorsCoverage, insurtech goes beyond just the technology, and extends into rethinking the industry as a whole and driving solutions using a modern approach and technologies that meet current and future consumer expectations and demands.”
At the end of the day, insurers want to facilitate and enhance the customer experience as much as possible, and insurtech is assisting with this. However, innovation in the insurance industry can be hindered by legacy systems that can make it difficult to adopt new technologies and processes. This can be problematic, especially when it comes to appealing to younger consumers, as Noam Shapira, Co-CEO and Co-Founder of Setoo, which has offices in Israel, the UK and France, explained: “There’s a huge disconnect between current insurance experiences and millennial consumer expectations. This gap is only set to grow, as millennials account for almost one-third of the world’s population, with a spending power that exceeds any other generation,” he told ITIJ. “Yet the insurance industry is lagging behind with unappealing legacy products and frustrating claims processes. To remain in the game, insurance players must bridge this gap.” This, however, is something that many insurers are cottoning on to, according to Rutta: “Insurance companies are revamping their legacy systems to create flexible platforms that improve the customer experience with user-centric mobile solutions.” Certainly, slow progress is better than no progress.
Power to the people
Indeed, insurtech presents a prime opportunity for advancement and is seen as a logical development to meet changing consumer demands. Part of this involves catering to millennials, and part involves the personalisation of products and services, as consumers increasingly crave offerings that can meet their individual needs rather than one-size-fits-all products.
“Insurtech players can develop new types of insurance products that millennials will actually want to buy,” said Shapira. “To meet the needs of the changing world, insurance needs to be personalised, hassle-free, offer support at critical moments and deliver compensation automatically without having to file any claim. These types of insurance offerings will be appealing to today’s – and tomorrow’s – consumers.”
Insurtech certainly offers the opportunity for insurers to be more consumer-centric, as Poletto highlighted: “Insurtech enables insurers to transition from a product and process-orientated business to a customer-orientated business, focused on understanding, satisfying and possibly anticipating their customers’ needs.”
Equally appealing to consumers, and perhaps even necessary in today’s digital world, is the ability to complete tasks at the click or a swipe of a finger. “The modern digital world is ever-evolving, incredibly demanding, mobile-driven, and people want to achieve their desired solution through their fingertips, or even with voice command,” said Shrivastava.
Insurers digitalising their relationship with consumers is therefore crucial, as Senén told ITIJ: “This is a must, not only in quote and buy, but also in mid-term adjustments, the renewal process and the claims process. Any insurtech project that brings betterment in this sense is satisfying needs. But needs are growing very quickly: AI, blockchain, smart contracts, augmented and virtual reality, data analytics and big data, chatbots, mobility, IoT … the list goes on!”
A bumpy transition
There are, however, barriers associated with the implementation of insurtech, but insurers are learning to overcome these. One barrier is related to the complexity of insurance, as Rutta highlighted: “Insurance is a very complex product line, with many regulations and controls. To create the desired user experience means taking complicated systems and rules engines, overlaid by a straightforward user interface,” he said. “This often requires untangling and reconfiguration of dated systems, coupled with integrating new platforms and data management. Right now, nearly every insurer is racing other insurers and startups to find ways to revamp or replace their back-end systems to deliver front-end simplicity.”
Poletto agrees that embracing insurtech involves abandoning the traditional. “The traditional role of insurance will change, and its pace will also change from slow and based on historical data to real-time and based on richer and broader sets of data,” he said.
Another challenge relates to the Insurance Distribution Directive (IDD) and the EU General Data Protection Regulation (GDPR). Setoo’s Shapira explained: “As well as the challenge of innovating in a highly regulated environment with IDD regional requirements, data restrictions cannot be ignored. Data is king – and the opportunity it brings to companies is clear – but in the era of GDPR it can also become a burden. Anyone selling insurance must be aware and compliant, and insurtech players need to be creative to deliver insurance products in line with data privacy regulations, while still enabling usage of data to reach smart business decisions that generate ancillary revenue and promote future growth.”
Insurance is a dinosaur … there are countless layers of the business that must be fine-tuned or changed before changes can be made to the remaining layers
An additional barrier is the reluctance of some incumbents to change, but similar reticence can be seen in some new companies. VisitorsCoverage’s Shrivastava muses on why this hesitation exists: “There are many reasons why the incumbent players are so reluctant to adopt new technology, and why new players hesitate to jump into this area of business. Insurtech is exploring avenues that larger, more traditional insurance firms have less incentive to explore. Lack of a unified forum for all insurers and insurance professionals only contributes to the disparity.”
Insurance, he explained, is ‘a dinosaur made of such complexity’: “There are countless layers of the business that must be fine-tuned or changed before changes can be made to the remaining layers. Insurance is not as simple as other businesses, in which customers can purchase a commodity product and if they don’t like it, they can simply return it.” Shrivastava believes that these and other reasons mean that it will take significant time, effort and innovation for the insurance industry to be on par with other industries who rely on the online marketplace.
Resistance is futile
Technology within the insurance industry has necessarily evolved, but what does the future of insurtech look like? Shrivastava believes that the outlook is bright, despite challenges: “Early innovators are facing unusual challenges, but they are opening the path for many others to join the game. Not many startups are equipped with the knowledge and tools to disrupt this business entirely, so as insurtech evolves and more companies join the race, innovation will be inevitable, with customers and companies alike having much to gain from these developments.”
Senén agrees that the sector will continue to gain traction. “Insurtech is a healthy sector,” he said. “There is money, many ideas and young people working hard, and new and cheap technology to be used. I am sure we will continue seeing new amazing developments in the insurtech sector worldwide.”
As far as Shapira is concerned, insurtech will become the new standard of insurance products. “Insurance should be purchased (and sold) like any other online product, as part of a great buying experience. It should be simple, reliable and relevant to the buyer,” he stated. “The insurtech industry is enabling new business models that will demand new types of insurance and protection and, as new risks arise, the insurtech market is best positioned to provide the right solution quickly and efficiently.”
New business models have certainly come to the forefront of insurers’ minds as they have adapted to the global coronavirus pandemic and lockdown measures. And research by Cass Business School shows how insurtech could offer insurers a route out of the pandemic. Their latest study found that insurance organisations often prioritise inward-facing, prescriptive digital strategies; whereas the rapid acceleration of Covid-19 has triggered business continuity plans across the world and changed working practices for insurers on a big scale, forcing a more ‘connected’ strategy. Lead Researcher Sarah Ruberry said: “A year ago, the insurance industry would have dismissed the idea of a wholesale working-from-home model and new business not needing to be conducted in person. Covid-19 has created an opportunity and a paradigm shift and similarly, insurers should refocus their digi-change lens.”
Despite the challenges facing insurers in embracing insurtech, ultimately it provides a way to assist consumers in new and innovative ways, keeping them happy and ensuring customer retention. The phenomenon emerged to meet consumer demand, and while it has not been around for that long in the grand scheme of things, it is here to stay – and in order to remain relevant in a technologically advanced world, insurers must keep pace. The future’s bright. The future’s insurtech.