Solving the insurtech puzzle
There are vast, unique and valuable ideas circling the market which are digitally transforming the industry and bringing the (re)insurance sector into the future.
However, they must be captured and executed in a strategic and careful way to ensure they meet the end goal of why they are needed, which is to create efficiencies and increase profitability for (re)insurers along with enhancing customer satisfaction.
Within the last couple of years, various insurtech MGA start-ups have entered the market, writing an array of business across most P&C lines as well as new unique product offerings. Insurtech businesses are drawn to the insurance market by the lure of disrupting the sector, creating high profit margins and the prospect of high valuations bestowed by investors hungry for technology exposure.
Most long-standing insurtechs have grown immensely since their inception, capturing ideas and generating customers at a rapid rate. Some have built their platforms around a direct-to-consumer model, bypassing traditional distribution channels, and, while this model can be efficient, it should be carefully evaluated and combined with a strong underwriting and data science and technology approach. The direct-to-consumer model also typically involves going via the ‘gatekeepers’ (search engines) and that comes with significant cost.
As the sector develops it is becoming increasingly clear that there are multiple pieces to the insurtech puzzle that must be aligned for a business to be successful over time. It starts with a great idea – something that will increase efficiency and transparency for the client. There are a lot of revolutionary ideas floating around the market, but not all of them can be turned into an insurance product and/or successfully find their way to a large group of customers. The technology must be compatible with underwriting practices and leveraged with insurance expertise and distribution.
Access to data has become increasingly popular among insurtechs because of the ability to combine data sets and provide new insights through the use of artificial intelligence. This has helped insurtechs understand their customers and what motivates them, which enables them to offer better coverage along with an enhanced understanding of risk behaviour, combined, in some cases, with safety technologies that can ultimately be used to mitigate losses.
Insurtechs must also carefully consider their distribution channel to ensure that the product offering is able to attract and convert opportunities. Insurtechs that can embed their products into a larger non-insurance transaction tend to drive increased profitability and growth as this process engages the potential customer during a larger life event, thereby appealing to customers that are normally less inclined to shop for insurance as well as less price-sensitive customers.
Within this approach, the size and time of the primary transaction will often significantly outweigh and allow for less scrutiny within the insurance transaction from the customer. For example, customers looking to lease or finance a property or automobile might place less emphasis around the price of insurance when embedded in that primary transaction and at the same time attract customers who are typically less inclined to shop their insurance policy. The insurtech market is also developing unique bolt-on products that may not yet be available within the typical distribution channel, which can be embedded within a larger insurance transaction affording a stronger insurance product and lead to higher customer retention.
Management of the platform is also vital. In many cases outside of certain model specific driven exposures like flood, which have recently outperformed the more traditional underwriting approach, a team comprising only technology experts may not provide the platform with the insurance knowledge it needs, and this is where many insurtechs have fallen short. Along with access to distribution, the platform should include a combination of underwriting and claims expertise and product development, in addition to the analytical and technological expertise the insurtech model aims to deliver.
The market has seen an increase in capacity as it relates to insurtechs, which is being deployed in a significant way through MGAs that tend to be more nimble than traditional carriers. These insurtech-focused programs tap into (re)insurance capacity through a combination of hybrid fronts and professional program carriers, both of which play a key role within the digital transformation of the insurance industry.
Some insurance entities throughout the value chain are now dedicating entire units to identify and analyse insurtech opportunities as they recognise this market is the future of the industry. Acrisure Re in particular has worked with a multitude of insurtech programs, both existing players and start-ups in the market, and has seen great success. At this intersection where insurance and technology are coming to a crossroad, we provide insight and expertise to get these platforms off the ground, ensuring long-term and profitable success for the (re)insurance market and ultimately delivering an enhanced and efficient product to the end user.