Library: PwC – How insurers can seize insurtech opportunities

Executive summary :

Legacy companies, startups and the drive for faster, cheaper and better results

Insurtech is not a silver bullet. It needs a clear plan to succeed

Insurance is boring. You might hear that from people who don’t know better. But the ones who are paying attention understand that some of the most interesting work in technology is taking place in insurance.

Recently, legacy insurers have started paying much more attention to newcomers. They’ve become some of the largest funders of these startups, recognising that teaming up with technology firms can be a game-changer.

But here’s the harsh reality: many if not most of these business relationships won’t meet expectations. When insurers turn to insurtech for the wrong reasons, or without a clear, sustainable plan to extract value, they’ll fail.

Insurtech and the Fourth Industrial Revolution (4IR)

How did we get here—and so quickly? The answer tells us a lot about what comes next. The insurance industry has grown in parallel with the economy. Each time there’s been a major leap in technology, the industry has responded with new products, new methods of distribution and new ways to evaluate risk. We’re at another inflection point, and the cycle is repeating itself in what has been dubbed the Fourth Industrial Revolution. We’ve arguably seen more technological innovation in the past decade than in the five decades that preceded it.

Fifty years ago, insurance companies were some of the earliest users of mainframe computers. The smartphone in your pocket today is literally thousands of times more powerful than those early machines, and customer data is now stored in the cloud rather than a carrier’s premises. Similarly, communications capabilities have exploded, and as 5G mobile networks emerge over the next decade, still more transformative technologies will become more practical, such as drones and autonomous vehicles. Each of these shifts has upended long-held industry assumptions about business and operating models, organisational structures and market strategies.

What this means for insurance professionals

• There are many ways to win, but you have to choose a clear path forward. The insurtech space is filled with good ideas, and many young companies have outstanding people and technology. While many tie-ups may seem appealing on paper, prescient leaders know to ask why—and ask it again. Investors and other stakeholders look most favorably on insurance companies with a coherent strategy: from carriers and third party administrators to technology vendors, agents, brokers and beyond.
• There are new sources of value. The model of collecting premiums for distributed risk has been fairly static for years, but Insurtech companies are now moving ahead with pay-per-use, an emphasis on loss prevention, restorative services and more. Legacy carriers can learn from these startups by forgetting some of what they “know” to be true.
• The pandemic has accelerated the pace of change. The industry was starting to act with more urgency prior to the pandemic but the pace of change has greatly intensified over the past year-and-a-half. This is primarily the result of needing to almost instantaneously move to virtual work and client service. The good news is that the industry has responded effectively – often using Insurtech solutions and working with new entrants to develop even more ways to succeed in the new environment.
• What used to be a sign of success may not be anymore. Buyers don’t necessarily correlate “large” with trust or stability like they once did. And while large organisations don’t have to be more bureaucratic than smaller companies, they often are. Correspondingly, if insurers aren’t careful when they team up with insurtech companies, their size and often more stolid culture can actually destroy the value that a tie-up promised.
• Speed matters more than ever. People want next day delivery and credit decisions in 60 seconds. Naturally, they also expect speedy underwriting decisions, claims adjustment, service requests and even product development. insurtech companies can often help carriers deliver these benefits to customers and prospects, if both parties share a common goal and understand their respective roles in achieving it.

Getting the most from insurtech

When insurance companies start exploring insurtech, they often zoom in on the tech first, looking for new systems to revolutionise procedures such as claims processing. Leaders look beyond features and functionality. These are the key components that take an insurtech plan from strategy to execution:

• Have a coherent strategy
• The importance of cultural fit
• Choose business models that work
• Manage innovation

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