2018 could be the year where re/insurance industry disruption from technology giants becomes a reality as new entrants such as Amazon and Google threaten established models, heaping further pressure on traditional insurers, according to Clyde & Co’s Insurance Growth Report.
To remain relevant in coming years traditional players have to revamp models, particularly where tech giants already have monopolies on web-based ecosystems and potential re/insurance distribution platforms.
In 2017, InsurTech became a mainstream driver for insurance sector growth, as funding volumes rose by 36% to $2.3 billion, according to a recent Willis Towers Watson report.
Despite these large sums being thrown into innovation, experts warn that 2018 could mark the point the long-foreseen disruption by tech giants becomes a reality.
The innovation race is in full sway as re/insurers seek out digital solutions to drive efficiencies across all processes and value chains, however, while traditional players take steps towards a tech and eco-platform driven distribution model, they could be overrun by firms like Google which already boast such platform monopolies.
As an example, Clyde & Co point to Tesla’s option of purchasing ‘Insure My Tesla’ cover written by local underwriters, which include Direct Line in the UK, meanwhile, Amazon has launched a London insurance division and is hiring aggressively.
Hong Kong-based Clyde & Co partner Kevin Martin said; “a huge digital ecosystem has been constructed by technology companies that allow them to have a detailed understanding of their customers, the use of big data is allowing the more powerful and innovative technology companies from Alibaba to Amazon to enter the insurance market, using their existing platforms as powerful distribution and analytics tools.
“This has the potential to turn the traditional insurance industry on its head for personal lines business.”
To combat increased pressures from new market entrants, re/insurers are moving full-force into an innovation drive; some players are bringing in customers via new distribution channels, others have acquired InsurTech start-ups while some have invested in in-house “digital garages” to develop proprietary solutions.
Clyde & Co analysts advise re/insurers to “evolve their business models and leave no stone unturned in the quest to protect market share and drive growth.
However, experts point to the caveat of insurance having been widely “tipped for a while as an industry ripe for disruption” but highlight that its resisted change more forcefully than many others.
“It will be fascinating to see where we are when we review developments again,” said analysts.
A further factor set to impact the re/insurance environment this year is increased regulatory scrutiny of InsurTech as new products move from experimental “sandbox environments” out into the testing and real-world use phase where they’ll have to comply with oversight.
Clyde & Co said black boxes in particular will come under scrutiny as the ICO and equivalent data regulators around the EU expect companies to find; “simple ways to tell the data subject about the rationale behind, or the criteria relied on in reaching the decision without necessarily always attempting a complex explanation of the algorithms used or disclosure of the full algorithm.”
In addition, 2018 is forecast to be the year blockchain will go mainstream, “insurers and brokers have seen the future. They’re just proving to themselves that it works,” commented analysts.
Clyde & Co concluded that although tech will not take-over, “disruption will become reality,” as new entrants such as Amazon and Google threaten established models and heap further pressure on traditional insurers, the question, said analysts, is “how rapidly traditional players can evolve their models in order to compete.”
