Over the past three years, we've watched the fundamentals of "InsurTech" evolve. The 300 InsurTechs that have presented at our conferences so far and the 2.500, which are stored in our database, give us a pretty good picture of the development so far, but also of the direction this development will take in the future. Looking back and into the future, we can identify four InsurTech waves, each of which has given or will give the insurance industry a new direction.
by Roger Peverelli, Reggy de Feniks and Walter C.
V er three years ago, in 2016, "InsurTtech" was mostly synonymous with "challengers."New market entrants set out to turn the established order on its head. Everyone was talking about "disruption."What was the main driver for this first wave?? Falling barriers to market entry as a result of new technologies.
The first InsurTech wave: The challengers
The new players took the lead in the innovative use of technology and data and developed new ways of working that eliminated the friction customers experienced in their interactions with incumbent market providers.
The famous US challenger Oscar puts it this way:
We didn't start this company because we are so fascinated by the topic of health insurance, but because exactly the opposite is true."
We have taken a close look at the value propositions of many of these new entrants. Almost all of them promise to eliminate the main reasons for customer dissatisfaction.
We have listed these reasons below. Around the world, customers have the same complaints about insurance companies. Our conclusion is that all the friction points customers experience have to do with "simplicity" and "personalization".
Of course, there is still a lot of room for improvement in this area. But all of these problems fall into the category of operational excellence. It would be fair to say that they should be solved in the short term, and indeed some have already been eliminated. We can already see that Net Promoter Scores are improving. Perhaps not everywhere, but the trend is positive. This may be the reason why so few of the new entrants have managed to gain significant market share so far. Apparently, a focus on solving operational problems alone is not enough to gain a sustainable competitive advantage. The few truly successful new players are those that have not only eliminated friction points, but have also developed an entirely new business model.
A great example of a new market provider with a novel business model is, of course, Lemonade. We are honored that Daniel Schreiber, co-founder and CEO of Lemonade, shared his perspective with us at the recent DIA conference in Amsterdam. Lemonade combines AI with behavioral economics to create novel business models and, most importantly, a new value proposition for customers.
The challengers' impact, in terms of market share, may be limited at this time. But that doesn't mean they are unimportant, because they have a very significant impact on market dynamics, but at a different level.
Their focus on minimizing friction points and new levels of service has led to a change in customer expectations. New market entrants are setting new standards. Customers expect incumbents to offer similar innovative services. And that has forced them to realize that they need to keep up with these new developments if they want to remain competitive.
The second wave: online mobile
This sense of urgency, was the driver of the second wave. Many insurance companies are exploring the potential of new data streams to optimize pricing, automate claims management and combat insurance fraud. Or they are launching all sorts of new proactive services, especially in online and mobile, often taking inspiration from the new challengers. Many recognize that collaboration with InsurTechs is essential to accelerating innovation.
It's clear that this second wave is making itself felt in the InsurTech landscape. We can easily see this in our InsurTech database. Of the 2.500 young tech companies worldwide are about 80 percent enablers. They focus on helping incumbent providers optimize or innovate certain stages of the value chain or create new value stages.
Taking a closer look at the 20 percent challengers, we find that they include a significant number of InsurTechs that also offer white-label solutions, allowing incumbent insurers to introduce a new business model almost immediately.
As mentioned, the significance of the first InsurTech wave, the challengers, is that they set new standards and created a sense of urgency. The value of the second InsurTech wave, enablers, is in their impact on revenue and profit generation for traditional providers.
In our conversations with insurance industry executives about the "state of innovation," few express concern. And they are in complete agreement about the importance of InsurTechs in accelerating digital transformation and innovation. However, when we talk about scaling the new solutions, they tend to get meek, both in terms of their organization and market visibility.
Despite all the investments, pilots and proofs of concept with InsurTechs, the impact on revenue and profit generation – in their own words – is still limited.
Obviously, we need to tackle this problem head on. If not, we run the risk of throwing the baby out with the bathwater.
For this reason, we asked several industry leaders to share their experiences and success factors in scaling – internally and in the marketplace. We have also asked them to describe why certain projects have not been successful. We also wanted to hear from them about examples of best practices and successful scaling. Later this year, we will report on the findings in a white paper.
While the second wave of InsurTech has yet to reach its full potential, we are already looking ahead to the third wave.
The third wave: ecosystems
In our view, "cross-industry ecosystems" are the all-encompassing trend for the next few years – a megatrend, if you will. You will be the main driver for the third InsurTech wave. More and more insurance companies are realizing that the most effective way to attract and retain customers is to participate in relevant platforms and ecosystems. They often take inspiration from the trailblazers in Asia, for example Rakuten and Ping An. This is one of the reasons why "East meets West. West meets East" is one of the main themes of this year's DIA conferences, and why we're not just talking about DIA Munich from 20.-21. November , but also the Hong Kong DIA from 11.-13. December this year, which is supported by InsurTech unicorn Zhong An and innovation hub Cyberport.
"Cross-industry ecosystems" are about being present and active on the platforms that people use to solve their everyday problems. We're not just talking about platforms around the home, mobility, work and health areas of life, but also event-based platforms around topics such as college, marriage, divorce and retirement – all moments that require important financial and risk decisions to be made.
A perfect example of an ecosystem platform is Mobly, founded by Belgian company Baloise. No one thinks about their car insurance first thing when they wake up in the morning, because the real underlying customer need is mobility. To meet this need, many customers purchase a used car. So Mobly made it their mission to help them do just that. Mobly provides car buyers with all the information they need to make a good decision – much more than you typically get – and even a real automotive expert to accompany buyers and examine the car of their dreams. Mobly has already launched other mobility services, including insurance. Ultimately, car insurance is insurance derived from the mobility need.
Meeting the true needs behind an insurance need typically requires more than insurance. An ecosystem-oriented mindset is characterized by "services beyond insurance coverage" and even "beyond the insurance industry". If you want to become a relevant partner in an ecosystem, you need to collaborate with other companies and organizations that also play an important role in the ecosystem, especially diverse innovative tech companies.
Take, for example, the Internet of Things (IoT) and health. We see many young tech companies focusing exclusively on improving healthcare and providing patients with more and better options. Its primary focus is not on insurance. Somnox, for example, has developed a so-called sleep robot that improves sleep quality. The company's goal is to make sleeping pills obsolete. In the Netherlands, 10 percent of the 17 million population takes about 170 million sleeping pills each year. While insurance isn't Somnox's primary focus, it's clear that this startup is of great interest to health insurers looking to improve patient care while lowering costs.
So as industry boundaries blur, we need to broaden our view. Any company that optimizes our value proposition is an interesting potential collaboration partner. This also adds a new perspective to the discussion about the definition of InsurTech. Given the importance of ecosystems, whether a tech company is a "true InsurTech" or not is completely irrelevant. More and more insurance companies are recognizing this. Collaborating with these other tech companies from adjacent industries and relevant ecosystems is the third InsurTech wave.
Whereas the value of the first wave of InsurTech, the challengers, was in changing customer expectations and developing a sense of urgency, and the value of the second wave, the enablers, was in their impact on revenue and profit generation, the third wave is about increasing relevance and unlocking new business models and revenue streams.
Because we believe cross-industry ecosystems will be the all-encompassing trend in the coming years, the lineup of DIA conferences always includes presentations from inspiring thought leaders from adjacent industries. Think BMW, Hyperloop Technologies, ING Bank, Rakuten and Bayer. The future of the insurance industry will be determined by the future of mobility, the future of healthcare, future lifestyles et cetera.
Among the 50+ handpicked InsurTechs, you will find many innovative tech companies that provide the nexus to other verticals.
The fourth InsurTech wave: a new target
We believe there will be another fourth wave. Clearly, new technologies are essential to repositioning the industry toward greater customer centricity. But they also offer insurance companies an opportunity to increase their impact on business and society and position themselves as a force for good.
New technologies have not only lowered the barriers to entry for new market players, but also removed the barriers that prevented incumbents from taking on this new role. We see a growing number of InsurTechs with a mission to attack major global challenges by applying new technologies to achieve significant results on an economic and societal level.
Just think of how health insurers are working with all sorts of connected devices and sophisticated algorithms to improve patient care while reducing health care costs – a vitally important aspect, for example, in regions hit hard by demographic change.
Or think about new technologies that can mitigate the damage caused by natural disasters like hurricanes and floods.
Take Understory from Minnesota, USA – a company that uses smart frahling sensors and data analytics to provide unprecedented details about how weather affects people and businesses. Insurance companies can use the white-label solutions offered by Understory to help their clients know what to do to avoid potential property losses. Fully $500 billion of the U.S. economy is weather-dependent. So you can imagine the value of Understory's sensors and data applications.
Or consider microinsurance solutions, such as those offered by BIMA, which provides protection to hundreds of millions of low-income families who do not qualify for insurance by standard standards. BIMA already has around 25 million customers in 14 countries, more than 90 percent of whom live on less than $10 a day. BIMA shows it's possible to reach the bottom of the income pyramid across the board.
The added value of the fourth wave is completely different today. The possibilities for increasing the insurance industry's impact on business and society through new technology seem almost endless.
What differentiates the four InsurTech waves from one another is their respective scale. And with each wave, their impact increases significantly and new horizons are opened for the insurance industry. We are still busy making good on the promises of the second wave, while at the same time we are on the verge of the third and even the fourth wave. This means exciting and promising times lie ahead – if we can seize the opportunities.