The insurance industry is one of the late starters in terms of digitisation, even in customer service, where digital networking has literally been imposed. This is largely the result of company size and the associated deadlocked structures, plus legacy systems and processes. These make it difficult to react spontaneously to new trends.

Insurtech has changed the game. New firms have landed in the market and are showing how it can be done. They are more flexible, more agile and make good use of the available technology – and they are gaining ground rapidly. Industry insiders are divided about the future: Some say that insurtech will replace traditional insurance, but others think it may just be a passing trend. I say probably neither of these is entirely true.

Not all insurtechs are created equal

It may be helpful to start with a bit of background. Insurtechs – like fintechs – are startups that specialise in insurance. There are currently about 2,000, with a market share of about 1-2 percent. The spectrum ranges from service providers with a classic insurer as a risk carrier in the background to the purely digital insurance company with its own products. Almost all insurtechs are rethinking parts of the value chain, and they usually place the customer much more in the spotlight than traditional insurance companies do. But only a small fraction of these insurtech companies have truly disruptive potential and represent real competition. The majority are serving niches or offering additional services that established insurers often either cannot or do not want to cover. What they all have in common is that they are more innovative and modern, and better able to meet newer customer needs, than traditional insurers. There is, therefore, scope for complementary working.

Traditional insurers, if we are honest, tend to be using the same old structures and processes, and often have an outdated customer approach, even if they have tried a bit of digitisation in their customer services. There are claims that 80 percent of insurers believe they are customer-focused, but only 8 percent of customers agree. Insurers have contact with their customers about once a year; insurtechs can be up to 12 times. It is therefore all the more important to close the gap between the two and open up new customer access instead of relying on TV advertising and comparison portals. A look to the east, and more precisely to China, shows how this can work in practice.

In an admittedly protected market, players like Zhong An are successfully breaking new ground, growing rapidly and already looking towards the European insurance market. Well-known sponsors such as Alibaba, Tencent and Ping An have provided a great deal of capital and customer access. The focus, however, is on individually tailored and integrated B2B2C sales with 100 partners instead of owned sales channels. Other success factors include the rapid development of new and bundled niche products and linked services in noninsurance areas, such as life coaching or restaurant guides. This – along with the efforts of platform providers such as Amazon to break into insurance and environmental factors such as regulation, low interest rates and loss of confidence – raises the question of whether insurers can update the traditional business model fast enough, or whether the whole industry should rethink its business model.

It is therefore not surprising that insurance companies – like banks with fintechs – have recognised these new startups as an opportunity, and chosen to cooperate with them in several different ways. Whether buying up, partnering or starting your own startup, the goal is always the same: Acquire digital expertise, promote innovation, put the customer in the spotlight and quickly break new ground.

Combine, not compete

The arrangement is, however, by no means a one-way street. The insurtechs also benefit because they often lack brand awareness, sales networks and a customer base, as well as experience in calculating risk. Fortunately, this is exactly the expertise of traditional insurers. One example is the combination of service and products: Insurtechs market and sell individually tailored insurance packages, but the products within them originate from a traditional insurer that also assumes the risk.

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Insurtechs therefore do not mean the end of the traditional insurance industry, because they are often not in direct competition. Instead, they act as pioneers to show the industry where to go next. Insurers that do not want to lag behind need to act and be open to all models of cooperation. One thing is certain: Insurtechs are here for the long term, and waiting is not an option.

 

This blog post was originally published in German on the regional blog site Mehr Wissen.