An Eruption in Disruptive InsurTech?

I attended an InsurTech “boot camp” at the magnificent Christ Church, Spitalfields, U.K., my first such event, and I was intrigued to see what would be presented and how the audience would react. The organizers billed the day’s theme as “Experience the Eruption.” Their website stated the aim was to “recognize the fast-paced appearance of insurance start-ups, which are creating seismic shifts behind the scenes that will lead to the emergence of a new identity within the insurance sector as we know it today. An 'eruption,' which will allow new disruptive entrants to break out into the mainstream and support an industry that needs to engage differently in a highly customer-centric and digital-friendly world.” Was that lofty ambition that labors excessively on hyperbole, or did the afternoon live up to the hype? The format of the afternoon was a series of Dragons' Den (a U.K. TV show) style pitches (without the interrogation) for investment or partnerships from the incubated firms selected for Startupbootcamp’s program (which includes investment from them, meaning there is an element of self-interest that firms do well). The pitches were preceded by a fireside chat from the chief strategy officer of Knip, a Swiss-based app that acts as a portal and broker for insurance policies. See Also: InsurTech Forces Industry to Rethink Were any truly disruptive? My view is that they all fell into one of three broad camps of focus: Distribution and Sales I’d put four firms in this bracket: MassUp, Spixii, Buzzmove and MyFutureNow — but all had a different focus with different levels of potential disruption. MassUp was all about making buying insurance for "stuff' easier by making it an add-on for any purchase. The company had a good story and was slick, but it didn’t feel truly disruptive. Credit card companies have been offering similar protection for years, and MassUp will do well to distinguish itself from extended warranty products that savvier consumers tend to decline. That, perhaps, is the problem with the business model for me — while tech may make it easy for the consumer to purchase the insurance (and for sales companies to add it as an option), it doesn’t obviously increase the value for the customer. BuzzMove is a successful online removals broker, a portal to help customers find a removal firm when they move houses. The company has added to its capability by recognizing that a key element of quoting for removals is an inventory of the things that need to be moved. Typically, individuals don’t do this when they take out contents insurance (or, indeed, don’t update it when they buy new things), so they run the risk of being under-insured. Linking the life event with an inventory that can be used to underpin an insurance quote is a smart way to add value to the customer — without additional effort. As such, it is effectively looking to take over the customer by owning the life event in the same way banks have looked to do — e.g. take out a mortgage, and they will try to convince you to re-visit your life insurance levels. As such, the concept is not disruptive, but the concept of the home inventory and the tech underlying how this is put together is something insurers (and others) will undoubtedly embrace, so it is therefore significant. I’ll return to this later, as the ownership of this data becomes key. MyFutureNow has a reasonably simple proposition; it is an online portal for customers to manage disparate pension plans by consolidating them into a single plan that is offered through the site. On the surface, its proposition is attractive and is reinforced by a slick implementation of the website and the app — the economics are being driven by a percentage fee on the value of the pension fund when transferred in. The key to success will be to differentiate the consumer experience. However, as regulated financial advisers will tell you, this is a complex area, and the consolidation of old plans is not necessarily the appropriate outcome for all consumers. It is unclear to me the extent to which MyFutureNow has have thought through the compliance and advice issues. Again, the focus is to try and take over ownership of a particular part of a customer's portfolio (in this case, pensions). Spixii’s proposition was timely, what with Facebook’s recent announcement of the addition of "bots" to its Messenger app. Essentially, Spixii offers a message bot that sells insurance (currently just travel insurance, but the concept could obviously be extended quite easily.) Inevitably, all financial service providers will add bots as way of communicating and selling, as will the price comparison websites, so this is definitely an "on-trend" area to watch. Customer Experience Three firms fall into this category: RightIndem, Domotz and Quantifyle. RightIndem looks to enhance claims management by allowing insurers to offer a self-service claims platform and by increasing the transparency of the claims process. Claims is an area consumers point to as frustrating, so any steps to enhance the offering will be hugely positive; it is an area we will see all insurers developing in the coming years. Domotz is a little more difficult to classify as it is not strictly an insurance proposition. The company plays in the space of the Internet of Things and the smart home. The insurance angle is providing information to the customer that will help reduce claims through smart home management (e.g. the customer gets an alert if running water is detected and nobody is home). Insurers might therefore offer discounts to those who install such systems. As such, it is perhaps similar to the wave some years ago when insurers encouraged drivers to fit alarms and immobilizers in their cars before they were standard issue. Quantifyle’s proposition is based on driving good customer behavior for wellness by motivating people to achieve fitness goals. Insurers have already played in this area — most noticeably Vitality, whose entire proposition is built around rewarding customers for their lifestyle. Big Data The last firm presenting is alone in this category, although others touched upon it. Fitsense­ demonstrated how it can harness the data collected from wearable tech (such as fitness trackers and smartphones) and overlay that with environmental information to provide the insurer insight into a customer's lifestyle and behavior. Undoubtedly, there is great insight to be had, but the key element here will be the willingness of consumers to adopt and provide that information to insurers. (Location-aware information was also touched on by Spixii, which speculated that its app could provide, for example, travel insurance options that depend on the travel profile of the individual.) This leads us into the important area of privacy and ownership of that information, with consumers rightly being concerned about the erosion of their privacy. While the youngest generation of consumers are likely to be increasingly less concerned, the adoption will need to happen slowly to bring customers along. There is also the risk of consumer self-selection (similar to the current adoption of "driving standards" apps by motor insurers), and it raises the moral question of whether increasingly individualized risk pricing is at odds with the original insurance principle of pooling of risks. So, What Was Missing? Invariably, InsurTech "innovation" majors on the three areas highlighted above — they are usually the easiest to move elements of the insurance process forward into the digital world but, therefore, are not necessarily disruptive, instead shifting the margin of current offerings. Two areas of development were conspicuous by their absence: Peer-to-Peer insurance This is an area where there are a few start-ups dabbling, but they haven't yet reached any critical mass. Key inhibitors are traditional barriers to entry to the world of insurance, namely regulation and, in particular, capital requirements. It is a fast-moving area and one where, potentially, blockchain technology will grow out of its hype to provide a compelling proposition that satisfies regulators. In particular, recent work suggests that using the Lloyd's of London model as template and porting to a blockchain model could provide the tipping point. Consumer-Owned Risk Assessment While big data has been touted as a way for insurers to get rich, detail on their customers and individualized risk assessment (which, in and of itself is simply a further iteration of the traditional model with more data) leads to issues of privacy and the moral question of individual versus pooling of risk. There is a paradigm shift in the interaction of consumers with institutions in the digital age that isn’t reflected here — that in which the consumer has more power and takes ownership of his or her own data. As such, this could break the mold of the traditional insurance product silos and be truly disruptive. In the new age, the dynamic is reversed, and the richness of data and the assessment of risks an individual faces do not belong to the institution — instead, control is with the individual, who, in turn, get the insight that allows them the power to manage a risk profile. See Also: A Mental Framework for InsurTech This shift has started in wealth management, and it seems natural that insurance will follow. New players in this sector will not be the traditional insurer, as the focus will need to be on providing the value to the consumer with the ownership of the data and allowing the consumer to manage it. This sits more easily with the business model of companies such as Google or Facebook than with the incumbents in the insurance market. Conclusion?  Nothing I saw in these presentations made me believe this group of companies would be genuinely disruptive (or, indeed made me reach for the checkbook to invest). When compared with the broader FinTech spectrum or tech-centric events, the afternoon felt less slick and less innovative. InsurTech is still young, so there is still a lot of maturing to do, but there were one or two hints from these companies that may stimulate discussion, which, in turn, might lead to genuine innovation.