"My light bulb moment was when I realized that as important as insurance—and by extension insurtech—is, 'risktech' is the future of technology that will be the most helpful to risk leaders going forward.
"I am not talking about today’s popular governance, risk management and compliance systems framework, but rather the technology solutions that will help mitigate risk by more effectively navigating the digitization of the risk profile of organizations."
This was an insight shared by Chris Mandel, Senior VP of Strategic Solutions for Sedgwick, in a recent article, "Insurtech or Risktech," published by Risk & Insurance. Chris's lightbulb moment came during a discussion that occurred during an event on technology hosted by Siemens in Houston, the result of a collaboration between Siemens and Insurance Thought Leadership.
Chris closes this piece with what amounts to a leadership challenge for risk managers in verticals other than insurance: "The good news is that these solutions are already beginning to emerge…. The remaining question is whether or not risk leaders are up to this new world challenge and how they’ll respond."
The basis for Chris's challenge to risk managers certainly also applies to corporate leaders across the insurance industry.
Never before have leaders faced a more demanding or compelling challenge to innovate. But, to do so, they must suspend a host of common beliefs: that an innovator first requires size, a particular culture, an abundance of resources or the completion of internal digitization efforts.
A few quick snapshots from the Innovator's Edge shows why those beliefs must be set aside.
In a relatively short list of technology-based firms, the total funding into their success exceeds $78 billion, spanning 2,096 firms. Look at the mix of technology applications.
Many fall outside of what many might classify as insurtechs, yet, to echo Chris’s phrase, these are very much "risktechs" in that many of these early-stage firms will affect risk—and by extension the insurance industry—to a far greater degree than many of the process improvement benefits being delivered to insurers via insurtechs. Note that many of these companies started with teams of less than five, yet will deliver massive amounts of innovation without meeting many of the common beliefs about how to produce it.
To highlight the need for broader thinking about innovation, consider the next chart, based on 547 early-stage entities with a funding total exceeding $29 billion. This chart shows that the funding supporting autonomous vehicle startups exceeds the selected insurance categories combined.
While insurtech companies will yield benefits to insurance operations in the near term, in the long term the application of "risktech," such as autonomous vehicles, potentially rewrites the rules of the entire insurance industry.
Since 2000, the cost of technologies has fallen by a factor of 3,000X while the computational capabilities have grown by a factor of 10,000X, and the insurtechs and risktechs riding those waves will provide the insurance industry with exponential growth opportunities. We maintain that adopting the best practices in insurance innovation is achievable, regardless of the size and perceived resource constraints of an insurance company.
Corporate leaders across the entire insurance value chain would be well served to consider these trends in the context of their legacy. Who will be remembered as the leaders who embraced growth via innovation vs. those who chose not to? Which path truly represents the more significant systemic risk to an enterprise: embracing the possibilities of innovation, or staying the course while competitors become innovators and transform their future?
Chief Innovation Officer
Insurance Thought Leadership
p.s. I'll be speaking about the tremendous opportunities for insurance innovation in an upcoming webinar in partnership with Johnson Lambert. Register to attend and join the conversation.