Bridging the gap between the insurance industry and technology

6 September 2018

The worldwide insurance industry has been shaken up in recent years with the rise of InsurTechs. An Oliver Wyman report – InsurTech caught on the radar. Hype or the next frontier? – quoting data from CBInsights, says that total InsurTech deal activity has increased seven-fold over the past decade, averaging $1.7 billion a year from 2014 to 2016, compared to $250 million a year, from 2011 to 2013. According to the report, “the insurance industry is undergoing a structural transformation, maybe the most radical in its history. It is likely that the industry will look much different a decade from now. Digitalization of the industry, combined with new technologies and changing customer behaviour, has brought forward a set of new players that are here to stay: InsurTechs.”

In insurance circles, the rise of companies like Lemonade in the United States has sparked interesting discussions about how InsurTechs can disrupt the industry. There is also a lot of focus on the vasts amount of money such a company can raise via its funding initiatives with Lemonade alone raising another $120m in 2017. Perhaps the biggest player in the InsurTech space is ZhongAn, an online insurer in China, which is generating billions of rands in premiums every year.

Besides all the money which is raised in investments, the question that must be asked is: are these companies successful? ZhongAn reported a loss of $157m in 2017; and first quarter losses in 2018 for Lemonade are reported to be in the tens of millions of dollars. Lemonade’s model of donating any underwriting profit to charity has a very marketable appeal, however, at the end of the day it is their reinsurance partners which have been footing the bills.

For rising InsurTech companies, capital is scarce and there is a strong focus on raising capital to keep the dream alive and this would require premium coming onto the books. However, one cannot deny that the customer journey of a lot of InsurTechs is very “sexy”, often using chatbots, artificial intelligence and machine learning techniques. Data is the new currency and incumbents with legacy insurance systems will be the most affected in the future.

According to PWC, in its Opportunities await: How InsurTech is reshaping insurance report published in 2016, three in four insurers predict disruption of their business over the next five years. Amongst insurers, the debate is no longer about whether disruptive innovation will happen but rather about who the ultimate victors will be. Will it be the software providers that have the technological know-how, but no insurance experience; or insurers that develop digital capability?

It is therefore not surprising that the biggest investors in a lot of InsurTechs are the insurers and reinsurers themselves.

According to Herman Schoeman, CEO of Guardrisk, joint ventures are the way to go for insurers wanting to stay ahead of the pack. To this end, Guardrisk has established a partnership with Root Insurance, whose insurance services are supported by Guardrisk’s parent company, MMI Holdings. The Root Insurance InsurTech platform is the first of its kind in South Africa, and one of only a handful of such platforms globally.

“This platform will enable us to develop products in record time, offering clients more choice and better value for money. And, although the digital revolution has come a little later to the insurance industry than to other sectors, there is no doubt that the arrival of InsurTech will have a significant impact on how insurers develop and distribute their products in future,” says Schoeman.

Although, entering the industry has been quite challenging for new InsurTechs, they are definitely here to stay and will start making waves in the coming years.

“Insurers that don’t embrace InsurTech will find themselves left behind,” predicts Schoeman.