Insurtech & Insurance Change

Insurtech strategies should be viewed in the context of the primary function of insurance and its regulatory environment.  Is there positive product/market fit?  Not always.

The primary function of insurance is to transfer risk from the insured to the insurer.  Related to this primary function are many other functions, including risk selection, risk pricing, risk mitigation and risk management.  Insurance distribution plays a critical role in allowing risk transfer to occur efficiently (although it may appear not to be the case).

Any change in insurance, whether technology/Insurtech driven change, such as new data analysis for risk pricing, or more traditional change, such as coverage, will be successful, or not, based on the specific change’s impact on effective risk transfer, insurance sales results and underwriting results – all within the regulatory structure (see our prior post on Insurtech & regulation here).

Innovation in insurance is not new.  Insurance companies, agents/brokers and service entities are constantly trying out new approaches that will increase sales and improve underwriting results.  But Insurtech strategies bring a completely different approach, and this new approach provides an opportunity for dramatic change in insurance process, customer value and financial results.  The trick will be balancing sales objectives and risk tolerances while also meeting regulatory requirements.  Some Insurtech strategies will succeed and drive positive change, and some will not.

Some Insurtech practitioners don’t understand the primary function of insurance – to transfer risk – and the processes that support this, nor do they understand the regulatory constraints on insurance (see prior post here).  Some have concluded that the industry does not understand technology, has resisted change and that Insurtech is the solution whether the industry wants it or not.  One example:

As an industry, insurance has been highly irrepressible to change. With time-consuming manual operations, and product complexities, customer satisfaction was always a worry. The customers did not have too many choices either. It’s only now that digital disruptors in insurance are changing the game.  As a result, the incumbent players are losing their customers, who now have several go-to options. It’s a wake-up call for the traditionalists. In order to stay relevant, they not only have to compete with the startups but also constantly innovate.  (see here.)

Successful Insurtech implementation will occur and lead to increased value to customers, competitive advantages, and better financial results, but the road will not be smooth.  At this point it is difficult if not impossible to predict how Insurtech driven change might play out, but a specific Insurtech  strategies should support the primary function of risk transfer and should fit within regulatory constraints.  We monitor this process and seek to identify those Insurtech strategies that can be effective in the current regulatory environment and successful supporting the process of transferring risk.

Innovate Insurance – Innovation & Entrepreneurship in Insurance

 

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