Insurtech is hot, so the world tells us that VCs and PE firms, large IT companies and a wide range of startups all agree on its prospects. A cynic would, however, say that the worlds of innovation and insurance could hardly be further apart.
A financial services industry – by its very nature – has a long-term view, with stability as part of its DNA and solidarity as its backbone. A long-term view does not spontaneously align with the speed, agility and instant nature of today’s society and of innovation. Stability has an uneasy relationship with constant change, and solidarity has to be reinvented to find its place in the personalized customer experience.
So which characteristics are most important? Here are six:
1. Digital DNA
– Customer-centric, agile, simple
Too often – even in startup designs – we see translations of today’s practices and procedures into a workflow built with new technology. These so-called optimizers have a place in the value chain and can help organizations improve digital access in their current environment. Insurtech should go further: redesign and simplify. Build processes in smaller kernels and connect those rather than "boiling the ocean." Build from scratch. There is no other way for existing insurers or new players than going digital. This trend is as big as automation was in the eighties: a giant leap forward.
See also: Top 10 Insurtech Trends for 2017
2. Instant, Open and Mobile –
the new norm for connectivity
Please stop debating this; these are all irreversible, societal changes that we see and experience in every walk of life. Insurance is not unique; these laws apply here. Look for omni-channel, use that time to develop an open and mobile solution that is instantaneously available with all relevant context. This is not a generational segmentation. We no longer speak of millennials but of Generation C – the connected customer who reaches across all ages and lifestyles.
3. Regulation as Opportunity
All too often, disruptive startups claim to shy away from the establishment, to make a new market, but even the Ubers of this world have to deal with the rules of law. As much as we may complain about the EU and consumer protection bodies, these same institutions create a massive market and playing field with their new technology. Don’t be shy; study the law and find your niche. At the very least, understand the impact: Making connections and using data for enhanced propositions sounds great, but be sure that things will change after May 25, 2018, in the EU when the GDPR (here is a quick and insightful analysis by Capco
) kicks in. Consent will be needed from every single customer or there will be tough penalties of as much as 4% of annual global revenue, or €20 million – whichever is the greater amount. On the other hand, PSD2 creates a totally new and open banking and insurance landscape – make sure to be educated and part of it.
4. Fair and Acceptable to the World
For too long, banking and insurance was primarily the domain of those fully participating in society, preferably with stable financial backgrounds, and the more assets the better the service that one could expect. Customers were "too poor to service" or did not have enough "income potential" to be an interesting target. New technology makes it possible to service every customer in a fit-for-purpose manner: Bank accounts can be as cheap and easy as mobile phone numbers, and the ultra-wealthy can have a 24-hour-a-day virtual concierge. More access to financial services means more economic participation, tax income, business development, financial health and independence and stability. Furthermore, recent debates on tax optimization and wealth gaps together with much more transparency make it clear that it simply is no longer acceptable to not let everyone participate – in a way that suits him or her. What started as a moral and political topic has found a firm place in the investment agenda of PE and VCs, too.
5. Data: Context Is King
Hardly any other industry is as data-rich as insurance; banking pales in significance to the data assets of insurance companies. Silos, warehouses... and data appears in higher volumes by the day. Today, we simply speak of structured and unstructured (social) data, which all carries extreme relevance, but... only at a certain moment in time for a certain person or occasion and in a certain context. The good news is that more than ever can we benefit from the pull effect of the right and interested audience when posting relevant content online. All this and more means only one thing: Data is nothing – context is everything. Despite tools galore, make sure you understand the GDPR (outside Europe, this will most likely become the acceptable norm, too) and build an environment in which the right data can be pulled into that transaction or context to enhance the value for the customer and the relevance to the insurance company. It can be done now!
6. Embrace the Ecosystem
Ownership is out, access is in: access to a wider ecosystem of business partners. You do not have to own or build something yourself to derive value from it. In an open API system, relevant third parties can be your last mile to a new customer segment, or in reverse they pay you for the last mile into your customer basis. Building relevant networks and opening up a network so customers can choose for themselves who they find relevant is the way forward. This speeds up your time to market, your relevance and the richness of the customer experience. Ecosystems can equally be entered into to try out new markets, new customer segments or new vertical offerings. Be aware that, in finding good partners and striking the right deal, the devil is in the detail of the cultural fit. Can large settled companies work with small agile ones? Will your teams be able to align? Culture matters most is one lesson we have already learned in the first few steps we have set in this direction as an industry. The how is as important to success, if not more, than the what.
Optimizers, Transformers and Disruptors
Our next blogpost will include the other four criteria. But these first six already provide a clear picture.
So does everyone have to tick all six boxes to be an insurtech firm? No, but this is a useful framework to position your company, your ambition and your market: to help investors understand what your ambition is, how fast things might go, how much money you might need and what other resources are key. As disruptive as technology and societal changes have been lately, nothing changes overnight in business. Disruptors will come, some will grow and become an established part of a new world, others might fail, having learned a lot.
See also: 4 Hot Spots for Innovation in Insurance
So take a step back and away from your startup dream of being the change agent of the new world and take a critical look at yourself. There is a lot of space for all types of players to make the transformation we as an industry face. We need optimizers – the players who give the industry tangible short-term benefits on the road to digitization. We need transformers, those that do not change the rules of the game, but that do rethink and redesign workflows, transaction processes and entire business flows. And, yes, we need disruptors to help the industry shape a new (level) playing field with new opportunities in areas no one could foresee.
The resources needed, the outlook, the potential of return and the addressable markets differ. Optimizers can become transformers after a few years of experience. Transformers, however, hardly ever become disruptors, the DNA is too different. It has happened, but in a new company with a new team and vision.
Embrace the world of insurtech, be honest about your position and aim for 10 stars in your business model. Stay tuned for the other four criteria. See you all in Amsterdam!