The insurance industry is on a collision course. As in the 1933 science fiction novel "When Worlds Collide," a small number of individuals with insight have recognized this fact and are preparing for a new and different future, while many others are blissfully unaware of the impending danger.
Okay, maybe that is a bit dramatic, but the traditional world of insurance is threatened by the rapidly encroaching digital world and insurtech.
At SMA, we foresee a convergence of the traditional and the new that will create an updated generation of the industry rather than the disruption (and perhaps destruction) of the industry that some predict.
Very few of the new entrants want to go it completely alone when it comes to meeting regulatory and capital requirements, underwriting the risk and managing the end-to-end insurance value chain. Instead, they tend to create value in specific areas that might mesh nicely into areas in need of enhancement at existing insurers. Thus, the emergence of convergence — or the bringing together of the new, innovative companies and capabilities with the traditional elements of established businesses.
See also: A Mental Framework for InsurTech
What is this convergence likely to look like? And, more importantly, what should insurers do to position themselves for success? If there is a single word that describes how convergence is playing out in the industry, that word is "partnering." One way to look at the partnering opportunities is to combine the best of the old with the best of the new in five key areas.
- Distribution: About 30% of all insurtech startups are, in some way, connected with the distribution space. These companies are born digital; often create an innovative customer experience; and leverage mobile, artificial intelligence, gamification and other technologies. Distribution is a prime area for partnering, and all of these new distribution firms are looking for insurer partners.
- Risk: The rapidly expanding availability of data on perils (especially real-time data) offers new possibilities for improved risk selection and pricing. New predictive models and scores; more location-based data with greater levels of precision; and new real-time behavioral data all create differentiating opportunities for insurers. Much of this new capability is available through firms that could be great partners.
- Product: Innovation is the name of the game with products. There are many insurtech firms that are creating ideas for micro-insurance, usage-based insurance, behavior-based insurance and parametric insurance. Many innovators are seeking insurers with underwriting capacity and a solid distribution network.
- Customer service: New options are emerging for areas such as billing, claims and other areas related to customer service. New and emerging technologies are especially relevant here, with drones, blockchain, mobile payments, AI, wearables and other tech creating new options. Many of the insurtech firms have innovative offerings in very specific areas and look for proof-of-concept and piloting opportunities with insurers.
- Operations: Many tech companies — both incumbent and new firms — offer solutions to take operational efficiency to the next level. Robotic process automation and other AI techs lead the way, but other technologies offer improvements, as well. Video streaming and smart glasses for claims can improve claim operations. Again, the companies that are creating these new solutions are eager to partner with insurers.
