While 2017 saw lots of progress in insurance, as the year winds down we’re going to put a stake in the ground and predict that 2018 will be the year that ushers in the amazing season of innovation and transformation that so many of us are hoping to produce.
For the last few years, the insurance industry has seen the rise of an idea-rich insurtech movement focusing on how new technologies could potentially disrupt or even replace the traditional insurance industry. It has been exciting to see the spread of ideas on how to reinvent insurance, but so far the reality hasn’t lived up to the hype.
In 2018, reality can catch up to the hype partly because more mature thinking is leading innovators to shift their focus away from disruption and replacement and toward what we consider to be transformation—in other words, using innovation and technology to help the industry to adapt, evolve and improve.
How will the industry be transformed?
Many of the early insurtechs were directed at distribution, because it is the consumer-facing part of the industry, and technology has reshaped customer preferences and attitudes. People sometimes refer to the “Amazoning” of commerce. Consumers now expect, even demand, the sort of one-click convenience that Amazon provides, even in industries far afield from Amazon. Examples of distribution-focused insurtech include comparison engines for buying insurance, direct online sales of personal and small business insurance, and on-demand insurance.
Increasingly, we see the insurance industry moving away from an emphasis on how technology alone can drive innovation. Instead, the industry is focusing more on where its needs are, then looking to see where technology can make processes more efficient and can solve problems, including the need for growth.
This shift might seem to create obstacles to insurtechs, which often tout the technology breakthroughs that they’ve engineered, but the focus on transformation creates opportunities for insurtechs to be successful, too. Insurtechs and insurers will, however, have to get more specific about what the needs are and how innovations can fill them. Insurtechs and insurers are drilling a tunnel, starting on opposite sides of a mountain, and they have to make sure they meet in the middle.
Simple objectives like improving “claims” are not enough—are you focused on first notice of loss, claims analysis, fraud detection, claims processing, claims payments or what?
To find the right solution, the industry must ask the right questions. A classic line in business literature is that a consumer doesn’t want a quarter-inch drill; he wants a quarter-inch hole. So, what quarter-inch hole does the consumer want or an organization need? What is the specific job to be done for an insured? What is the specific strategic domain that can be improved to help an organization grow?
When the right questions are asked, and executives in the insurance industry recognize that true transformation is a path to growth and greater profitability, we believe the industry will increasingly find that integrating with insurtech solutions leads to meaningful innovation.
For their part, insurtechs can’t create new technology applications in isolation and will need to work more closely with the insurance industry to identify opportunities for innovation.
This will become more urgent as insurtechs seek additional investment. Most of the investment so far in insurtech has been at the seed or early stage, and most of these companies are still working their way through their initial funding. But as their second or later rounds come up, there will be some consolidation, as always happens in a hot, new space. Insurtechs will wash out if their technology is not easily integrated by customers and partners or does not clearly contribute to profitable growth. The market will weed out underperformers because insurance is a results-oriented business.
As the insurance industry increasingly embraces innovation, we will continue to do all we can to provide insights, context and perspective, helping the industry—including insurtech innovators—to discover and hone technologies and solutions that can be a catalyst for growth.
Wayne Allen
CEO - Innovator's Edge, Insurance Thought Leadership
