Insurance Article, The Insurance Times 2021, The Insurance Times November 2021

Is Insurtech really a disruptor for the insurance industry?

Introduction

A relatively recent phenomenon observed in the insurance industry is the incursion of Insurtech. Insurtech or Insuretech, made up of the English words Insurance and Technology, is the result of the confluence of digitization and disruptive innovation strategies in the insurance sector.

The insurance sector is closely related to the banking and finance sectors. As in case of  the latter, the insurance sector is also utilizing  innovative techniques such as artificial intelligence, machine learning or big data to modernize and digitize the insurance sector.  This has correspondingly led to the birth of startups, focused on offering this type of solution to create novel insurance products. This has strengthened and consolidated Insurtech. Enhanced digitization of office operations for the industry has also led to greater choice and convenience for consumers.

There is a view that Insurtech is a disruptor. But is it really a disruptor? If so, how much of a disruptor has it been so far? Moreover, if it is not really a disruptor then what is it? What has its contribution been to the insurance industry globally and what and where are Insurtech entities situated?

 If one attempts to find answers to these questions then only can one come to a considered opinion on this matter.

What is a Disruptor?

A dictionary meaning of disrupt is – disorder, unsettle, agitate or spoil. This conveys the popular meaning of the word- disrupt.

Unlike what the term disruptor popularly connotes, it has a positive and transformative ring to it, in the business context. To be a disruptor is to create a product, service, or a technique of doing things which effectively displaces the existing market leaders.

Their impact on the system is positive since they challenge current organizational habits and procedures, to find positive and enhanced alternatives. Examples of disruptive technology include e-commerce, online news sites, ride-sharing apps, and GPS systems.

Insurtech and the incursion of Emerging Technologies 

Insurtech is posing a challenge to the status quo of the insurance industry. By using new emerging technologies, such as Artificial Intelligence (AI), Robotic Process Automation (RPA), blockchain and Big Data they are overhauling conventional processes of the insurance value chain to improve efficiency and increase the customer experience significantly.

 A part of digital disruption is digitization of the business process. It helps the organization by increasing its efficiency, cost-effectiveness and productivity. Further it also makes the organization more customer-friendly.

Some important Insurtech entities in India and abroad

There are a number of insurtech entities leveraging new technology to enrich the insurance eco-system by offering innovative products and digital claims procedures geared to modern customer preferences.

Some of the important players abroad are- ZhongAn in China; Lemonade in USA; BIMA in Sweden; and Oscar Health, Slice and Trov  in USA to name just a few representative entities. Entities such as the Parisian firm Shift Technology, UK based Quantemplate and USA based Slice offer technical solutions to the insurance industry.

In the Indian sector, Acko General Insurance which is totally digital and sells bite-sized products via online channels,  Go Digit- the new Indian unicorn of 2021 and insurance start-up Toffee Insurance are amongst the well known insurtech entities in India.  One of the oldest entities  Mantra Labs,  Pentation Analytics, and  Bengaluru based Artivatic Data Labs are some other Indian entities well-known for their offerings of advanced technical solutions.

Contribution of Insurtech to the Insurance industry

It would be necessary at this juncture to enumerate the numerous contributions of Insurtech. It has enriched the insurance industry significantly.

·         Advanced data analytics capabilities

Today’s digital consumers ‍have triggered a digital revolution, which has led to review and modifications of legacy systems and infrastructure to meet current demands. Big data analytics play a major role in getting 360-degree insights of customer behaviour and preferences.

·         App-based consumer engagement products

‍Insurers are creating lifestyle apps that provide additional consumer value on a continuing basis.

·         New sources of customer information

‍Insurtech firms gather customer information through devices such as wearables and smart-phone apps. This data is expected to incentivize better behavior and eventually lead to lower premiums.

·        Using IoT (or Internet of Things)

‍Numerous companies are now offering solutions based on vehicle telematics, environmental sensors, asset tracking, and home security. Insurance companies have been among the earliest adopters of this technology as this enables them to offer relevant packages based on actual use and behavior rather than averaged statistics.

·         Leveraging social media for meaningful interaction‍

Insurtech companies effectively use social media for efficient communication & interaction with people. They have realized that it is a convenient ally in connecting with customers and thereby improving their business volumes.

·         Improved fraud management ‍

Identifying fraudulent claims is often difficult. Predictive analysis is now in use which uses a combination of rules, modeling, text mining, database searches, and exception reporting. This new technique identifies fraud sooner and more effectively.

Insurtech and disruption in the insurance industry

Though there are numerous Insurtech firms globally that are addressing the requirements of the insurance industry, but Insurtech is still in a stage of infancy. New exciting business models to take over the insurance industry, such as micro-insurance and pay-as-you-go insurance, have emerged.

But what will truly change the nature of the industry is the shift from complex, long-term insurance products to the fractions of insurance for a particular moment, time, and miles count. These new opportunities are increasingly tied to mobile devices.

As mentioned earlier, a disruptor in the business context is an organization bringing in new technologies and other innovation into the industry, to cause a radical change therein. Though Insurtech is commonly associated with disruption, in my view, it is still premature to categorize Insurtech as a disruptor. Insurtech had emerged on the scene with the potential to bring in radical change as a disruptor but now things appear to be taking a different turn.

In their own time there have been other sweeping changes which have brought about, what can be more appropriately termed as disruption or radical change. An instance, though not from the domain of finance, would be the sweeping change in the transportation sector. Upto the eighteenth century, road-travel was mainly undertaken by horse-drawn carriages. Subsequently, there was a change when steam engines and then the internal combustion engines were introduced. The travel industry grew and gradually horse carriages went into disuse and the steam engines were later replaced by diesel engines and even later by electrical locomotives, bullet trains, driverless trains, Maglev etc. Thus, new technology in transportation was first a disruptor, was gradually absorbed into the industry and eventually became an integral part of the sector.

The entire eco-system changed and many organizations connected with the earlier forms of transport, went into closure. But the transportation industry thrived and provided convenience at an affordable cost for consumers. Similarly air travel has put the erstwhile passenger liners out of business and become part of the travel industry. Mass travel is now common and affordable. This would be a good instance of disruption.

But remarkable change and not radical change may take place in many different ways. The degree of change and the extent of the impact on the sector concerned is required to be ‘measured’ in order to evaluate the role of the new-comers. To focus on a relatively modern development, in the hospitality and travel sector, the “Airb&b” concept arrived as a potential disruptor in the hospitality sector. They provide personalized comfort, stay and even food at relatively affordable rates to travelers all over the world. Bookings take place online and they have their scheme of certification for the discerning traveler to choose from. But they have not put the traditional hotels out of business. Both systems exist side by side and their advent would, in the medium to long-run increased the size of the market, which is a positive for any industry.

The travel market has also grown and there are travelers with a variety of preferences and budgets to cater to. So the hospitality sector has absorbed this new trend, and not necessarily to the detriment of the traditional players in the hospitality sector.

What really emerges from these instances is that some remarkable changes may even lead to facilitation and not necessarily disruption in an existing industry.   

The dictionary meaning of a facilitator (noun) is a person or entity that helps in assisting another in doing something more easily by discussion, providing advice, mentoring, etc., rather than offering a ready-made solution without any involvement of the recipient. For example, a teacher acts as a facilitator of learning.  Therefore, in the context of the insurance industry, it would refer to entities assisting the insurance industry to achieve some goal or providing help in modernizing the industry with new learning leading to better benefits for all stake-holders. It is thus beneficial and not detrimental to the insurance industry.

Though the Insurtech new-comers made their presence felt in the insurance industry with cutting edge technology and innovative products, and may even have been viewed as upstarts, they are here to stay and now co-exist with the established insurers. At this stage, it would be appropriate to state, in my view, that Insurtech has provided a great deal of value-addition to the insurance industry by their innovative products and use of emerging technology.

As Insurtech is forging a new path in the insurance sector, which brings multiple benefits with it may now be argued that the established but adaptable insurers are possibly viewing them as new entrants who have something constructive to offer the legacy bound global insurance industry.

At this juncture, it may be prudent to carefully observe the changes taking place in the insurance to frame a proper response or policy on the same.  A considered analysis about the role of Insurtech, with more data, in this respect will then emerge which will assist in coming to a proper conclusion in the matter.

Determinants required to assess whether Insurtech is actually a Disruptor?

One would need some determinants of the extent of the impact made on the insurance industry to arrive at, a conclusion, as to whether Insurtech is really a disruptor. The following determinants, in my view, would at least be required for such an assessment:

  • It is yet too early to say how much of the Insurtech presence has contributed to a significant premium growth or increase in turn-over for the insurance industry. Some estimates say that Insurtech is likely to increase their premium beyond USD 556 billion by 2025, a 123% leap from the USD 250 billion in 2020. But more data over a period of time, is required to arrive at how much increase in overall premium figures, this translates into. More data is also required on changes in growth and profitability indices, before arriving at any opinion.
  • Insurtech has as of now, increased customer satisfaction and raised expectations with their new digitized offerings. Many of these products are low cost products which have increased affordability and also brought in inclusivity, as already described earlier.

With the increase of the customer base, awareness of insurance is also growing globally. This is definitely beneficial for the insurance industry. It is to be hoped that in the long run this will only increase penetration and inclusivity.

But it would of course, be necessary to go beyond the business figures and other such general trends and also reflect on the impact of Insurtech on the basis of other factors such as changes in affordability of products, customer satisfaction, spread of insurance awareness, increase of penetration and inclusivity. These would the other important indices, findings on which would be required to come to a definitive conclusion.

  • One would also need determinants in respect of whether there has globally been any radical or significant change in the market-structure of the insurance industry. There are no Insurtech monopolistic, duopolistic or cartel-like market-structures emerging anywhere in the world, at least at this point of time. But such changes may take more time to crystallize.
  • Data does not support the contention that there has been a major adverse impact after the incursion of Insurtech, on the traditional insurance industry in any country. No old legacy insurer has been forced out of the business, as yet.

Rather, Insurtech has utilized emerging technologies, which have been described at length, to revitalize this sector. Old legacy businesses are slowly converting their methods as their survival is at stake. Other agile organizations have already made the required learning and are making many changes to their work-processes. Determinants are also required to gauge the extent of this change.

  • Any industry becoming more competitive is a positive development as it leads to new product-innovation, makes products available to a wider consumer-base and overall increases price-competiveness which is good for the consumer. So a determinant is also required to assess how competitive has the insurance industry become after the incursion of Insurtech.

It would be acceptable to experts, in my opinion, if an independent  rating organization with established credentials were to rate the new and also the older and established organizations, on these criteria, to arrive at impartial and reliable findings for the benefit of the entire industry. Only then would it be possible to assess the impact of Insurtech on the insurance industry and understand how much of disruption have they actually caused.

 

Conclusion

Can it now be argued that Insurtech with their innovative, agile and digitally advanced work-processes are really being over-rated by being called disruptors? While they must be evaluated dispassionately, rather than with euphoria, for bringing a breath of fresh-air into age-old work and thought processes, they have not yet taken the industry by storm, and brought in sweeping and radical changes, as it were.

The insurance industry rather seems to be bestowing on  them  the role of facilitators as other organizations are drawing on their technological offerings and  other learning to revamp and modernize themselves and increase their customer-base and turnover.

So a balanced view about Insurtech appears to place them somewhere in between the two categories of disruptor and facilitator, for the time being.

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