FWD Insurance Head of Innovation Centre Natalia Kozyura unpacks the symbiotic relationship between Insurtechs and incumbent insurance brands and argues that fierce collaboration rather than competition, will be the key to marketplace sustainability for all.
By Natalia Kozyura
It’s no secret that tech start-ups have grown exponentially over the past ten years, penetrating entire ecosystems in banking and retail and now infiltrating other spaces such as insurance. In many ways, the challenge for us is not so much the speed of innovation but the fact that it’s taking place in so many areas across the value chain.
In the end, any start-up, across any industry, poses a challenge. But they also create an unrivalled opportunity to solve some deeply embedded problems, and in doing so, they offer solutions that can truly enhance customer experience. However, I want to move the conversation beyond challenge versus opportunity and into an area of response. Because it’s our response to disruption (and new tech) that will become our own defining moments as brands.
When it comes to new tech, the standard response has been to build it or buy it. But this somewhat binary strategy doesn’t create scope for added value. The kind that businesses need in order to move forward in what some are calling the ‘fourth industrial revolution’. So, I’d like to propose a third way, and that’s to join forces with it. In other words, to fully collaborate as partners, harnessing the power of innovation to create an increasingly mixed ecosystem -and a variety of assets. It’s about what both ends of the spectrum can provide. Because we need what start-ups can offer and they need our investment, our experience, and resources.
Looking from the outside-in, insurtech start-ups help us streamline the value chain and millennialise our products so that basically, we can keep up. This is important whether or not your target customer is generation X or Y. Because all our customers are generation C – the connected generation. As they continue to integrate digital experiences into their everyday lives, they’ll start to expect their relationship with their airline, their grocery store, and yes, their insurer to become more intuitive.
In short, we need start-ups. That’s not just because of the end-product they offer, but also because of their mindset and approach. Start-ups are able to focus on intuitive, customer-first business models and can develop these from scratch – straight from the lab, in a fail-fast, grow-quick environment. Simply put, they’re not hampered by the legacy processes and protocols inherent in big corporations.
Insurtechs also have the ability to quickly tap into developing markets. For example, a mobile micro insurer based in Sweden provides small-ticket insurance in emerging markets where mobile device penetration is high, but coverage is low. It now reaches an impressive 20 million customers in 15 countries across Africa, Asia, and Latin America, providing pay-as-you-go insurance and mobile health services, primarily to those who live on less than US$10 a day.
Insurtechs also have one thing in common; they’re all innovating in at least one area of the value chain that’s traditionally belonged to mainstream insurers.
One of the primary ways they’re doing this is by applying machine learning to sales and claims. To give some contextual background, our customer details very often live in multiple systems all operating in silos. Machine learning can integrate these. In real terms, this means personalised risk assessment and faster claims that are processed (and paid) in minutes, not days or weeks – with built-in fraud detection algorithms.
They’re also applying smart devices to customer engagement, which is a particularly good strategy as most mainstream insurers have limited consumer contact beyond claims and renewal. Naturally this poses challenges for us around loyalty and retention. But wearables and vehicle telematics create an intersection between smart-devices and risk-minimising behaviours, allowing insurers to take a more proactive role, and offer meaningful discounts. This in turn increases customer engagement.
For example, insurers can incentivise customers through an ‘exercise more, pay less’ model. All of this creates a new kind of customer experience that’s ready for a new kind of future.
Another emerging trend is the use of blockchain. And at this point let’s address the elephant in the room. We’re well-aware that the insurance industry has been held back by a legacy of mistrust. Blockchain can help diminish this by using new data to sell products with improved underwriting, as well as ensure a faster, easier claims process that increases trust and builds brand affinity.
But while there’s no doubt that disruptors, digital-natives, and start-ups are in a strong position, this is by far a one-way street. Because just as we need them, they also benefit from working with us.
Insurtechs are disruptive in ways that extend beyond a commercial, competitive sense, and increasingly they’re looking to work with established insurance firms, not least because they’re aware of their own limitations and risks.
Insurtechs face their own set of challenges, many of which are not usually shared by established brands. For one thing, they need requisite stores of capital and the ability to grow their assets in proportion to the amount of risk they underwrite. Then there’s the adverse selection problem, namely, that the first people attracted to a new insurance product are often the ones that carry the highest risk. This means a disproportionately higher than average number of claims once you launch. And for any start-up, the launch period is the most critical.
Another mitigating factor is data. Because to start an insurance business, you need historic (as well as new) data on which to underwrite and base decisions – the kind that’s privately held by insurers such as us.
Building up data, given that claims are comparatively infrequent events, can be a real challenge for start-ups. Without it, there’s a danger that they could misprice risk.
I also think it’s worth playing devil’s advocate here in order to offset a little of the hype surrounding headline disrupters and flagship start-ups. Yes they do receive a lot of attention from venture capitalists, but while we hear a lot of noise on the big funding, what’s less reported upon are the big exits. Additionally a lot of VCs are using their capital to make their investments attractive enough to get bought out by the mainstream insurers. This becomes a win-win because it’s the venture capitalists that have contributed to R&D funding.
Weaving all of this together, insurtechs bring an exciting, customer-centric approach with new products that deliver great customer experience. They also bring new ways of thinking, entrepreneurial drive and impressive agility. But let’s not forget they also carry risk – from regulatory demands for working capital to lack of historic data. To counter these, we bring strength – via data reserves, easy and established access to customers, and our ability to scale.
Clearly then, collaboration is the biggest opportunity and the most prudent step. Ultimately a more traditional, transactional relationship of supply and demand means we can only buy the technology, not the great minds that conceived it. A pragmatic approach is to work together.
I remain convinced that mainstream insurance companies won’t become obsolete as long as they embrace new technology to become future-ready. Because our industry (and probably yours too) is now fast moving towards full customer orientation, with a growing consideration of all states of the customer journey. Next generation insurance means insurance that’s fast, transparent, driven by data, and where customer, not product, is key.
Currently at FWD we have several partnerships with insurtechs. We’ve just started working with an AI-driven fraud detection start-up based in France.
We also have a partnership with an Israeli start-up so we can digitise our documents. Closer to home, we’re working in partnership with a Singapore-based fintech so we can create next-gen chatbots and other AI projects.
We’ve also been working with a blockchain platform and digital insurance broker to prototype new blockchain solutions.
Underpinning these partnerships is our overarching objective of creating efficiency across our operations, and ultimately, delivering on our brand vision to change the way people feel about insurance.
The solution is to think like a start-up and act like a disruptor. In other words, take a risk and manage it. After all, that is what insurers do best.