In our continuing efforts at ONE to bring together leading thought makers and opinions within the insurance/insurtech space, today we are pleased to share the thoughts of Sebastian Schmidt.
Sebastian is the innovation manager at MunichRE, the world’s largest reinsurer.
What to expect from InsurTechs – a reinsurer’s perspective.
Even after the massive investments in to InsurTechs over the recent years, there are currently no areas within the insurance industry that are dominated by startups just yet.
So what role does the InsurTech ecosystem play and are these new players here for good?
Looking at the InsurTech environment, what you first see is a dense fog of buzzwords like P2P, AI, SAAS, automatisation, telematics, etc. It is a fog swirling around a number of promising startups, enthusiastic VCs and insecure incumbents. If I were to segment it, I would break it down as follows;
Enablers feed the industry!
When we compare different insurance markets, major differences in the way business is conducted and which technology is used can be seen. Also in more developed markets, there is a gap between different players and especially when compared to industries outside of the slow, regulated insurance world.
To catch up with current developments, startups can be a great tool for the incumbents. They can serve as an outsourced R&D department, combining industry forces and creating the right working environment for innovation hungry tech talent.
Thereby, developments such as digital customer interaction, embedded products, IT security and many others, can be implemented within insurance companies from the outside.
This is can be hugely preferable to large incumbent insurers creating internal projects attempting to replicate external innovations, which can consume a lot of internal time and resources.
In the European market, companies such as “flexperto”, “FRISS” or “simplesurance” are prominent representatives of this category. It’s not only the PI carriers that can be enabled to evolve via external innovation, e.g. wefox showed us they could help the broker industry evolve by building and offering them a ready made digital infrastructure.
The above startups are innovating and enabling incumbents to catch up with market and technological developments, but are not changing the way insurance actually functions.
Before incumbents engage with startups in this space, I would advise them to define the goals to be achieved as clearly as possible. Of course, most of the startups offer stunning solutions, but do those fit to your company’s needs? A clear strategy needs to be in place for the future of your company, before simply innovating for innovation’s sake. Consultants or reinsurers overviewing the market and assuring the quality of these startups can help here.
Disruptors – Swimming with the big fish!
Disruptors change the rules the insurance industry actually runs by. This can happen by challenging the concept of how insurance functions, as e.g. “Lemonade” or “insure a thing” do. Alternatively, disrupting startups can generate new concepts by simply changing standardised product features or by focusing on niches, as “Trov” or “Sherpa” and “Bought By Many” do.
These disruptive insurance startups, to date, have been built fairly infrequently. The reason for this is that they often come along with a high demand for capital, as products need to be developed from scratch, revenue is not generated at an early stage, and there are, of course, substantial regulatory hurdles to traverse. All of which can be off putting to many entrepreneurs considering how to disrupt the insurance industry.
Being acquired or integrated is not a priority, and it is core to their strategy to only partner with corporates who will not cause them to lose speed, agility or get stuck in politics. However, the ‘right’ corporates/incumbents do have a lot to offer to these startups under the right circumstances.
Munich Re Digital Partners, for example, offers a quick way to market by providing licenses and an infrastructure of service providers. It is likely, that some of these new players will become established in their niches or even become relevant players in the wider market. This does not mean that the big incumbents will go out of business, so long as they keep adopting to the constantly developing environment and customer needs.
Combining these two categories; a disruptive business model plus state of the art technology, creates a competitive advantage not many in the industry have achieved yet. This opens a window of opportunity for new players, such as ONE, to enter the market.
ONE will have all parts of its value chain ready for features such as digital customer interaction, automated underwriting, claims automatisation and customer services, without facing the challenging process of integrating them via enabling tech startups or internal costly time-consuming internal projects. This will lead to a high degree of flexibility, scalability, and efficiency.
Just imagine a world without huge IT projects…
But what are the conclusions for established primary insurers? For any successful transformation of an organisation, it is essential to see a changing environment/market, as an opportunity more than a threat. Therefore, it is necessary to counteract deficits in their own organisation and work with a vision towards future markets, e.g. via enabling startups. At the same time new, early adopting tech players, who have a higher ability to test and educate the market should serve as role models and evolve the insurance industry for the benefit of the entire industry.
Author & appreciated feedback:
Sebastian Schmidt, Innovation Manager, Munich Re ([email protected])