Of respondents to a new survey on attitudes to the adoption of technology in financial services, a huge 86% of insurance and reinsurance company executives questioned said that believe InsurTech threatens at least 20% of their revenues.
PwC’s 2017 Global FinTech survey found that the insurance and reinsurance sector is particularly afraid of the potential for revenues to be squeezed by the increasing pace of technological development in the sector.
56% of global re/insurers surveyed by PwC for the study said that up to 20% of their revenue is thought to be at risk to InsurTech. Another 20% believe that up to 40% of their revenue is at risk, and 10% believe the at risk portion of their revenues could be greater than 40%.
The good news is that the re/insurance sector is responding to these threats, and PWC’s study found that re/insurers are viewed as active than the rest of the financial services sector, in monitoring and responding to FinTech and InsurTech threats, often partnering with start-ups and other sources of innovation.
PwC believes that the re/insurance market has changed its perception of InsurTech over the past year and, despite concerns over revenue-loss to new start-ups, there is a growing understanding and acceptance of the benefits that can be gained by embracing technology.
In fact, while fearing revenue loss, re/insurers are ploughing ahead and looking for solutions to this, with more than 52% of survey respondents saying that innovation is now at the heart of their business strategy.
Stephen O’Hearn, Global Insurance leader at PwC, commented on the survey results; “Innovation in insurance, driven by the rise of InsurTech, has come a long way over the past year and there is no longer any question of whether companies will be involved with InsurTech. It’s a question of how they use it to their advantage and tie it into their overall business strategy.
“Insurance has always been an industry based on data and it is encouraging to see insurers investing heavily in a new wave of technology enabling them to use the data they have at their disposal in the best possible way for their customers and their own bottom line.
“Undoubtedly insurers still have their reservations, but it’s great to see increased investment in technology such as AI and blockchain and an interest in partnering with others in order to make the most of this excellent opportunity.”
Jonathan Howe, Global InsurTech leader at PwC, explained that through adoption of InsurTech insurers can change the way people perceive their product set.
“Companies are increasingly waking up to the potential InsurTech brings. If insurers can successfully use AI and data analytics to help their customers prevent claims happening in the first place, while at the same time delivering the responsive service that they expect from other industries, they will be able to transform how insurance is viewed by customers.
“It’s undeniable that existing insurers are still concerned about new entrants muscling in on their revenue, and regulation and corporate culture continues to be a barrier for some when working with innovators. But in the end, whether it is partnering with, or acquiring startups, or fostering innovation internally, insurers need to find a way to bring the benefits of InsurTech into the mainstream. Our survey suggests that this is now about to happen,” Howe explained.
Additionally, PwC’s survey found that blockchain remains a key area of exploration and development in re/insurance, with 68% saying that they plan to adopt blockchain as part of an in-production system by 2018, while 81% claim to now be familiar with the concept of blockchain.
However, while 68% target using blockchain technologies, only 8% say they will invest in it over the next year, which suggests a ramp up of intentions is required to get to the adoption target.
Meanwhile, 94% of insurers say customer engagement and generating better risk insights are the most important innovation trends for them. 84% plan to invest in new and improved data analytics, to help them make better use of their wealth of data. But 63% of respondents are concerned about regulation and data privacy when working in collaboration with startups, which could hold back the sector a little.
With insurance and reinsurance revenues already being hit, by competition from alternative and capital markets backed business models, higher ceding fees, commissions and margin erosion due to global players moving up the value chain, the threat from technology and start-ups to revenues is real.
However, it is now impossible to ride this wave out and survive, meaning re/insurers have to be ready to embrace change, InsurTech, new ways of doing business and interacting with their customers, so it’s encouraging to see the survey results largely reflect a realisation that something has to be done in order to survive.