July 15, 2016
The insurance sector, which is considered to be fairly traditional and resistant to change, is currently being overtaken by a macro trend of digital transformation. This is causing institutions with hundreds of years of tradition to rethink their insurance business models by identifying modules within their own value chain that need to be transformed or reinvented with the help of technology and data usage. InsurTech represents a macro trend destined to take on an ever-growing relevance in a world which tends toward hyperconnectivity and the infiltration of technology into all aspects of society. The insurance business will become more InsurTech-oriented, and technology will have a decisive role in reaching strategic goals. This applies to insurance companies, reinsurers, intermediaries and newcomers. During 2015, InsurTech startups received around $2.5 billion in funding, according to LTP.
The number of innovative initiatives is growing exponentially, raising interest for all phases of the customer journey and all steps in the insurance value chain. This reveals a very crowded map of innovations that were introduced by the incumbents of the insurance sector or by startups. The innovations can be divided into seven macro areas: awareness, choice, acquisition, use, recommendation, Internet of Things (IoT) and peer-to-peer (P2P). One of the main challenges for analysts, incumbents, startups and investors is identifying the degree of relevance that these innovations represent for the insurance sector. MEDICI provides a detailed analysis of around 260 startups engaged in the various macro areas listed above along with the segment they cater to in the InsurTech value chain.
After many discussions with venture capitalists and insurance thought leaders, I’ve come up with my own answer for the following question: What is the potential of each InsurTech initiative? My approach is based on four axes related to the fundamentals of the insurance business:
These considerations refer to a specific innovation initiative and are not absolute. On the contrary, they should be customized to each specific market, line of business and client segment. In a similar manner, an insurance company has to make these considerations by taking into account both the contribution brought toward the achievement of strategic priorities and the coherence with its distribution approach.
I am convinced that evaluating InsurTech opportunities based on this pragmatic approach clarifies the rationale behind each innovation initiative. It facilitates the prioritization of initiatives and ultimately helps focus investors’ and innovators’ efforts.
If we consider some connected insurance use cases, it easy to understand the reason why the World Economic Forum identified connected insurance as one of the main insurance innovation trends:
Italy is today one of the most advanced ecosystems of connected insurance, encompassing 4,9 million auto insurance contracts, which include a box provided by the company, and almost 50,000 home insurance contracts, which are characterized by the use of sensors communicating with the company. In this context, the Connected Insurance Observatory was born: a think tank dedicated to spreading the culture of insurance innovation. I put together the Observatory at the beginning of 2016 with the support of the Italian National Association of Insurance Companies (ANIA). The Observatory has made it possible to unite 30 primary Italian and international insurance groups and some 15 other interested players to bring a contribution to the InsurTech story in the making.