The innovation-focused InsurTech movement hit its stride by addressing traditional insurance challenges and gaps. Market confidence underscores the rise in the value and number of InsurTech firms as investments in InsurTech startups grew 36.5% annually from 2014 to 2017.
InsurTech firms have caught the eye of venture capitalists by leveraging their strengths to improve existing insurance processes, enhancing customer experience, and introducing technology-based disruptive models.
What sets InsurTechs apart?
InsurTech firms’ top advantage may be their ability to identify and meet both new market needs and long existing opportunities that haven’t been addressed. Armed with the latest digital know-how and agility, they are quick to fill product and capability gaps across the insurance value chain.
In fact, 55% of InsurTechs and 40% of incumbents agreed that the ability to address key market and customer needs is the biggest strength of InsurTech firms across categories, according to survey results from Capgemini’s inaugural World InsurTech Report 2018. Agility, as well as the ability to collaborate and integrate into ecosystems, rounded out the report’s top-three InsurTech strengths.
The study also revealed that InsurTechs’ prime impact on the industry – apart from enriching customer experience and bringing in new business models – is enhancing established insurers’ capabilities. At least one-third of polled InsurTech and incumbent insurers said InsurTech firms can enhance incumbent insurers’ capabilities.
InsurTechs face business road bumps
While they possess valuable advantages, InsurTechs also face certain inherent challenges. Customer trust is not the strong suit of InsurTech firms (as outlined in the World Insurance Report 2017), but it is a key strength of traditional insurers. InsurTechs also lag incumbents in brand recognition and industry know-how because they are new to the industry party.
As InsurTech firms work to earn customer trust, they must also navigate the complex insurance industry regulatory landscape. The lack of capital and heavy reliance on investor funding also makes it difficult to scale quickly.
While InsurTech challenges are incumbent strengths, the newcomers’ assets are invaluable to an industry seeking to efficiently meet evolving customer expectations, to encourage new business models, and to streamline existing cumbersome processes.
Hugging it out
Win-win collaborations between established insurers and InsurTechs is on the rise as both camps look to offset challenges and generate synergy by leveraging each other’s corresponding set of strengths.
It’s no surprise that more than 75% of incumbent insurers said they consider InsurTech collaboration as a way to improve their customer experience competencies. Other vital collaborative benefits include faster time to market (59.5%) and building new digital capabilities (46.8%), according to incumbents surveyed for the World InsurTech Report 2018.
The most preferred approaches to InsurTech collaboration are through partnership to develop new solutions or by purchasing their solutions as a service. More than three-quarters of the executives interviewed for World InsurTech Report – across life, health, and property and casualty sub-sectors – said they favored partnership to develop solutions.
Other approaches to partnership include purchasing white-labeled solutions from InsurTech firms, making financial investments in startups, or sponsoring InsurTech incubator or accelerator programs.
Today’s fast-paced and increasingly-competitive insurance industry doesn’t offer respite to carriers. They must quickly meet market demands and enhance customer interactions, or risk being left behind.
Savvy insurers are turning to collaboration as an effective tool to drive innovation and develop capabilities for long-term business sustainability. For now, and into the foreseeable future, the most successful insurers and InsurTechs will most likely be those that identify the right partners with which to strategically collaborate.
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