Analysts at Fitch Ratings have argued that the success of partnerships with technology firms in the insurance space will play an increasingly important role in the future market position of insurance companies.
The rating agency expects to see a rise in the number of partnerships between traditional insurance companies and insurtechs in the coming years.
These could take the form of direct investments or collaborations, and will likely have a measurable impact on the success of many firms.
Fitch believes that successful collaboration will enable insurance companies to quickly adopt the latest technology, increase companies’ profitability by reducing operating expenses, diversify insurers’ distribution channels and products, and improve customer experience and retention.
But it also acknowledged that technology-based innovation and digital-first solutions in the insurance sector will intensify the competition from non-insurers, such as tech companies – especially in sectors where tech companies have access to concentrated market shares.
Moreover, due to the technological changes that facilitate more ubiquitous access to information, analysts expect market demand to shift towards the quality of the product rather than the familiarity of well-known insurance brands.
This could endanger the competitive edge of traditional insurance companies that rely heavily on their brand and market reputation, especially if they are slow in adapting to the new market conditions and in becoming innovative in their products and business models.
However, Fitch also foresees difficulties for new technology-focused entrants, who face high market entrance barriers due to the highly regulated and capital intensive nature of the insurance market.
Additionally, not all InsurTech activities are regulated under current regulatory frameworks, creating a regulatory grey zone that could deter providers of capital.
