Finding Value in Insurtech (Part 1)

Insurtech is a poorly defined term, and as a result is little understood across the industry. At one end of the spectrum it can refer to early stage startup spun out of the world of fintech to focus purely on insurance; at the other end of the spectrum, it can refer to anything remotely innovative around the application of technology within an insurance context. This ambiguity, coupled with a high degree of media attention, has led to confusion and inconsistencies in understanding future value. Typical accepted signs of success, such as a flurry of startup activity in a given sector, higher levels of hiring activity, new inward investment or exit values, are not always good indicators of future value — despite being useful pointers. Furthermore, focusing purely on market-visible startup activity omits equivalent innovation activity underway within insurers, either as part of incubation or greenfield ventures.

Increasingly, we are being asked to help identify the source for future value for a few select concepts being explored within insurtech, specifically around distribution, proposition design and business model formation. Although there is a significant amount of public information available across the market for startup activity, venture activity and exit values, there is a dearth of data available on market traction and customer value. Consequently, in this research, Celent chose to break down insurtech into a set of characteristics that describe a future vision of insurance, around which some predictions around time-to-value could be made. They include attributes like a heightened level of digital engagement, a switch in proposition from purely indemnity toward active loss prevention, a fundamentally different business model and a shift toward a more agile way of working. We refer to these as “insurtech concepts,” and they can be evidenced in both startup ventures and an insurer’s innovation activity, helping to make them universal in their applicability.

Given this inherent market and data collection difficulty at this early stage, we gathered 72 expert predictions of time-to-value for some of these specific insurtech concepts and general preparedness from our innovation leaders panel. The findings from this research have been insightful.

When the insurtech concepts are viewed in their entirety across all lines of business, a number of patterns begin to emerge when evaluating expert predictions for time-to-value. Using these predictions, innovations and new partnerships in distribution are likely to remain the primary focus of insurers for generating value in both the near and medium term. Given the activity already underway around robo advice, aggregators and digital platform partnerships, this observation may come as no surprise. With respect to the proposition, the focus on patterns for continuous engagement also attract a degree of attention (with 92% expecting a significant shift within the next five years), albeit largely focused on existing propositions and models. Experimentation beyond this for the proposition will differ depending on the market segment and product line. It is likely that retail propositions will continue to become more sophisticated in pricing and the use of external data (from sensors or otherwise) for tailoring the price to the end customer, while commercial continues to develop around disaggregation and the formation of alternative distribution, and active loss avoidance. Although the switch to becoming a more virtual organization appears to attract less attention today, Celent believes that the fast pace of AI maturation will provide a more certain path to value in the near term. This sentiment is also being echoed in client conversations we have had as part of the 2018 planning process, as can be seen in Celent’s latest insurance innovation outlook report.

Other highlights include:

• When analyzing the expert predictions for a selection of insurtech concepts by line of business, the time-to-value expectations between retail personal lines and commercial lines, and among life, health and P&C, can vary by some degree.
• Based upon these findings, it is clear that greater levels of change are expected sooner in retail personal lines than, say, either life or commercial P&C.
• Regardless of line of business, there is an expectation that technology-led innovations focused on distribution will have a greater impact in the near term.
• An overall shift in proposition toward continuous engagement (92% over five years) and move toward product distribution via aggregators (86% over five years) also appear likely in the near term.
• Although still represented within an insurer’s innovation activity, the timeframe to achieve future value from new tech-enabled propositions and business models remains less certain; a longer time horizon is expected. Consequently, greater care needs to be taken when allocating resources.

Although still at a nascent stage, insurers should prepare to adapt innovation activities to recognize the different expectations for time-to-value between lines of business, while maintaining a strong focus on innovation in distribution regardless, because disruption in this part of the value chain is already clearly signposted.

This report is the first of a two-report series. Part 1 focuses on time-to-value for given insurtech concepts. Part 2 explores how insurance company innovators are approaching insurtech in their ambitions to engage.