The InsurTech movement, which leverages technology to improve customer experience, streamline policy management, and spur competition, is bringing sweeping changes to an age-old industry known for its aversion to change. Agile InsurTech firms are transforming the way insurance coverage is designed and delivered by using technology in innovative ways.
The World InsurTech Report 2018 (WITR 2018), Capgemini’s inaugural in-depth exploration of the InsurTech movement, classifies these disruptive InsurTech firms as either:
- Full carriers: providing end-to-end insurance offerings
- Enablers: supporting established insurers with technology solutions
- Distributors: providing digital distribution platforms for insurance products from multiple insurers.
Of these, full-carrier InsurTechs follow new business models such as peer-to-peer insurance, micro insurance, on-demand insurance, and usage-based insurance or they can follow existing business models and conduct their business fully online or on mobile (digital carriers).
Key strengths of full-carrier InsurTechs
A unique characteristic of full-carrier InsurTechs is a highly customer-centric business model that caters to the needs’ gap in today’s dynamic market. On-demand insurance, usage-based insurance, and micro-insurance offer perspective policyholders flexible, affordable, and convenient choices.
Both established insurers and InsurTechs said they believe the ability to address a critical market/customer need is the top strength of full carriers, according to 42.3% of traditional insurers and 57.1% of InsurTech firms surveyed for the WITR 2018.
More than 35% of insurers and InsurTechs agreed that full carriers have a strong ability to build a sustainable competitive advantage. However, while 47.6% of InsurTechs said they had a sound business model, only 26.9% of established insurers concurred.
Full-carrier partnership potential – Short-to-medium term
A current-state assessment of the potential benefits to established insurers of partnering with a full carrier revealed short- and medium-term value for each of these InsurTech types.
Generally, full-carrier InsurTechs offer a strong value proposition and end-user impact because their models are decidedly customer-centric and geared to bridge existing market gaps. However, their impact on established insurers’ revenues may be less in the near term because they generally serve smaller, niche markets. Moreover, their disruptive models may generate upfront costs and challenges when it comes to integration within traditional insurers’ legacy businesses. Full-carrier models may also pose challenges regarding ease of integration and scalability due to their more complex and non-traditional design.
Some established insurers are cautious about partnership. Fewer than 40% of surveyed firms said they planned to partner with a full-carrier InsurTech in the near term.
Full-carrier partnership potential – Long term
The WITR 2018 also assessed the sustainability and long-term partnership implications of these industry newcomers.
For models such as P2P, on-demand, and micro-insurance, the ability to sustain profitability and scale remained uncertain because of their complex operations and non-traditional approaches to risk pools and capital management.
On the other hand, digital carriers and usage-based InsurTechs have a strong value proposition and are more robust business models. However, established insurers can build these models in-house. In the case of usage-based models, insurers may prefer internal control for better access to customer data.
Digital carriers and usage-based models ranked higher on long-term partnership potential, with digital carriers among the long-term frontrunners. It is interesting to note that established insurers expressed the most interest in partnering with on-demand insurers among the full carriers, with 31.6% of surveyed insurers saying they planned to collaborate with on-demand insurers in the long term.
Interest in usage-based and on-demand insurance models may grow over time because they cater to evolving customer expectations while benefitting established insurers. As technology continues to open new frontiers, it may not be too long before we see insurers actively explore other disruptive insurance models, too.
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