So, what do incumbents do to overcome their legacy challenges and respond to this new way of thinking?
Today, more and more InsurTech firms are targeting personalized services and offerings to customer segments, such as city dwellers, who drive fewer miles each year than the typical American, or millennials who embrace ride-sharing services instead of car ownership.
InsurTech offerings are cropping up in property, travel, life and health insurance – while others focus on specific functions across the insurance value chain such as interactions between the insured, agent, and carriers through the policy purchasing process or claims management.
Regardless of the focus or go-to-market approach of an individual InsurTech firm, new-age insurers are driven to deliver the best possible experience to customers (insureds and claimants), agents, partners, and employees. The result? Disruption of a multi-billion-dollar industry that traditionally grew and profited through reliance on significant scale and high entry barriers.
InsurTech firms’ clever use of mobility, digitalization, and data-driven decision making has earned them substantial consumer mindshare as they seek meaningful market share. In other words, regardless of their relatively smaller size, they are punching above their weight and setting the standard by which all incumbent carriers are measured.
InsurTech nimbleness, guerilla-marketing tactics, and penchant for self-promotion are supplanting incumbents’ massive scale and strength. Slowly, and in some cases reluctantly, traditional insurers are coming to realize that if they do not learn to innovate quickly, their considerable strengths in today’s context will tax their success in tomorrow’s more agile, innovation-driven insurance marketplace.
Many incumbents are working with legacy core insurance-processing systems that handle policy administration, underwriting, billing, and claims functions – and were designed for scale-based processing. They perform well for the limited sources of data required (in today’s context) to plop a potential risk into a pool of other risks and then price accordingly.
However, these systems don’t pass muster in a world of individualized personal and location-based data (weather, traffic, crime rate) that can be used to evaluate and price an individual risk. Many InsurTech firms can do that and are increasingly tailoring offers to disrupt the traditional insurance value chain and attract the most favorable risks to insure.
This value chain disaggregation allows insurance customers to flexibly pick and choose products that best suit their needs and preferences and are priced to match their risk profile.
Many traditional insurers, however, are not prepared to fully leverage real-time data.
In fact, less than 20% of the insurers surveyed as part of Capgemini’s World Insurance Report 2018 said they had implemented the complete front- and back-end infrastructure to capture real-time data, and less than 40% said they were using advanced analytics to generate real-time insights.
Unlike the somewhat closed systems used by most incumbents, InsurTech firms are building platforms based on open-system principles that allow third-party connections and, in many cases, integration with traditional insurers to complete offerings – thereby gaining even more wallet share of the clients they attract.
For example, New York-based property and casualty insurer Lemonade has made its sales platform API available to other businesses such as e-commerce sites and real-estate apps. It also has launched an open-source renters’ insurance policy that can be edited and customized by its customers, other insurance firms or rivals because Lemonade plans no copyright restrictions. The aim is to develop a policy that that is easily understood and can be changed so that customers get the coverage they want.
There is no turning back. InsurTech firms and their innovative contributions are here to stay. So, whether you’re a CIO/CTO or a line manager working for an insurance carrier, you must heed the call to action and modernize your existing core systems, many of which rely on a 20- to 30-year old technology stack that is paralyzing your ability to respond to today’s market opportunities.
As always, I’d love to hear your thoughts and comments. Feel free to connect with me via my profile or on social media.
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 Insurance Journal, “Lemonade Proposes Open Source Insurance Policy for All to Change, Adopt,” Andrew G. Simpson, May 21, 2018, https://www.insurancejournal.com/news/national/2018/05/21/489871.htm