Time for reinvention

New startups are looking for ways to do insurance better and faster.

By Brian Reid, Principal, Life Technology Solutions, Milliman.

Insurers are under increasing pressure to evolve. If they don’t move fast enough to adopt the new technologies that are already transforming people’s everyday lives then they risk being viewed by customers as being outdated or, worse, irrelevant.

The banking industry was quicker in adopting new technology, but the insurance industry is catching up fast. Around $6 billion poured into insurtech ventures between 2011 and 2016, and 2017 saw record investment, according to CB Insights.

The level of disruption to the insurance industry is likely to be as high as banking—if not higher.

The transformation that banking has undergone in the past decade, from an industry where everything had to be done in person after standing in line to one where you can do pretty much everything on a smartphone, indicates the potential for change in insurance is immense.

But, although the pace of innovation is heating up, most of the investment is skewed toward the property and casualty (P&C) business.

An analysis of insurtech deals between 2014 and 2016 by Accenture showed that an average of 67% were focused on the nonlife sector, whereas only 6% were focused on life.

Partly that is because it’s easier to let computers underwrite policies insuring bicycles, cameras, or rented apartments than it is to let them loose on insuring the life of a person with complicated needs or medical history.

But a conservative, risk-averse culture still pervades many life insurers, which is slowing their adoption of new technology.

Innovation in healthcare sector

Healthcare seems to be an oasis of new ideas, however. Jennifer Fitzgerald, cofounder and CEO of Policygenius, describes how her company has rethought the process of buying health and disability coverage at the FT Insurance Innovation Summit in New York in April.

By using computers to crunch data to select applicants, it is doing away with the need for invasive medical tests in many applications.

As a result, Policygenius is enjoying greater success than traditional players in turning people from browsers into buyers, according to Fitzgerald.

Rethinking the process, by using technology to make it faster and easier, is a big step forward in shifting people’s perception of life insurance as an investment in the future rather than a necessary evil.

But rethinking the product itself requires more freedom. Lemonade CEO Daniel Schreiber describes how the company’s founders decided early on to create an insurer rather than a distributor, because it would give them more space in which to innovate.

It’s still rare for new life insurers to be created, but in Collective Health, Bright Health, and Oscar, the United States has three “full stack” startups looking to rebuild health insurance from scratch, using technology as the building blocks.

Industry elder points to the future

Technology-driven transformation is rapidly changing the face of the global insurance business, says Maurice Greenberg, chairman and CEO of C.V. Starr & Co.

When one of the industry’s titans for 50 years describes how he’s embracing the disruptive power of new technology, working closely with new insurtech ventures in China, then you know this is no flash in the pan.

Newer isn’t always better. Many insurtechs will fail. Many will see their new ideas refined and improved by others. Insurers are increasingly investing in startups to see if their innovations will turn into real game changers.

Three-quarters of life insurance CEOs we surveyed for a report on tech-driven transformation said they saw new market competitors as being the main external reason for transforming their businesses.
They understand it is the likes of Apple and Amazon, rather than their traditional rivals, that are now dictating the pace of change in the insurance market.

They are responding by looking to adopt new ideas from other industries, such as venture capital or technology, to help reinvent their organizations.

But there’s no guarantee that the established players will dominate in tomorrow’s market. The old differentiators, like a company’s financial strength or its storied history, will become less important than its openness to new ideas and its desire to improve.

We’re at the start of the most significant change in the insurance industry for generations. Greenberg’s message is a simple one: if your company hasn’t already developed a digital strategy then time is running out.