Establishing a date for when the first InsurTech appeared is always going to be controversial, but there is some evidence to suggest that it first emerged around 2010. The big question is whether today, 13 years later, the insurance sector has adapted to the quirky ways of headstrong InsurTech start-ups or whether nothing has really changed.
Financial services – and certainly the segment of financial services that looks after other people’s money – is both highly regulated and highly capitalised. Risk-taking hedge funds and venture capitalists can gamble with other people’s money – but when it comes to nuts-and-bolts insurance and banking, companies have to be as solid as the rock of Gibraltar.
That’s why a high-profile collapse like Silicon Valley Bank garners global headlines and why the US government may be forced to cover all deposits, otherwise the security and safety of the banking system itself would be called into question.
One of the side effects of the extreme regulation and compliance requirements that insurance companies and banks are subject to is that they are acutely risk averse – to the point of appearing boring.
In the insurance sector, being risk averse and boring does not lend itself to the adoption of cutting-edge technologies when doing business – like AI, blockchain and IoT. This is why, over a decade ago, young VC-funded technology start-ups could emerge that offered to modernise ‘the entire insurance value chain’.
They called themselves InsurTechs, a badge they wore with pride.
While insurance companies, today increasingly referred to as ‘incumbents’ to distinguish them from InsurTech ‘aspirants’, watched the rise of these technology wannabees as a potential threat, the InsurTechs themselves began to discover just how heavily regulated the sector was.
Simply getting a licence that allowed them to transact business outside of the sandbox that had been built for them by the regulator to play in was going to be a serious challenge. Getting the quantity of capital that would be required to underwrite risks that could accumulate into the hundreds of millions of dollars was another.
Some regulators may have been happy for InsurTechs to continue in the sandbox for a protracted period because they themselves were not entirely sure how to go about regulating technology start-ups in the financial services arena. Their experience up to that point had been restricted to supervising old-fashioned insurance companies.
What became increasingly clear was that both insurers and InsurTechs had embarked on a learning and adaptation curve – and no one knew where that would lead. Would insurers ‘pivot’ and become ‘agile’ across ‘the entire insurance value chain’ and start focusing on ‘the customer journey’?
Insurers certainly became fluent in spouting the technology-riddled cliched nonsense of the IT crowd, but had they actually learned how to think in a more lateral fashion? Had they learned to be nimble in practice and not just nimble at PR?
Wasted time, wasted money
Singapore-headquartered InsurTech eBaoTech CEO Woody Mo has an interesting take on how receptive insurers have been to the new reality of technology’s ingress into the world of underwriting.
“A lot of people think that it’s such an easy revolution,” he said. “After a few years, I would say most of the InsurTechs didn’t really work out. There are a lot of failures. There was a lot of wasted money. There was a lot of wasted time.”
Dr Mo does not consider attempts at InsurTech integration as a failure – just that the right formula could be elusive for some. But for him, the solution is not in adopting trendy tech, it is about looking to the fundamentals of insurance and seeing how the business could be done better, quicker and cheaper.
“There’s a lot of things that need to be done, but they will have to be done at some fundamental level,” said Dr Mo. “This industry is very complex, very regulated, affects a lot of people and there are a lot of people who do not have the sophistication to understand the industry.”
Regulation of insurance sits at the centre of everything.
“Regulation will always be a factor and there is always a lot of very deep knowledge that needs to be learned for anybody who wants to ‘change the industry’ … a lot of people who initially thought this is going to be an easy way to do something big are probably disappointed,” said Dr Mo.
One significant question is whether insurers have finished absorbing the best bits of InsurTech or whether that process carries on at present.
“I don’t think insurance incumbents have changed much,” said Dr Mo.
“There is, practically, very little learning from InsurTechs because a lot of things were not successful in the first place. The hard things that the traditional industry needed to do have not been done … insurance incumbents have not changed much over the last few years … if your fundamental capability cannot allow you to do the kind of things that consumers are used to now, you just cannot support it.”
Dr Mo believes that the industry is just at the start of the cycle of change. “I wouldn’t say this is a revolution,” he said. “I think we are probably only at 2% of the cycle. There’s still a long way to go.”
Perhaps insurers and InsurTechs, like the British and the Americans, are ‘divided by a common language’. Each seems to understand what the other does, but in practice there might be less fruitful collaboration than observers had first imagined.
The pages that follow offer some insights into the harsh reality of business relations between insurance companies and InsurTechs – but the common conclusion seems to be that there is still a long way to go. A