Article Synopsis :
Commercial insurance executives are well aware of the benefits of digital but face several obstacles.
Bigger companies are slow to adopt and adapt because underwriting and claims are complex and require human intervention, some transactions are low volume and bespoke and legacy IT systems and processes complicate the process of transition.
Backward about moving forward
Commercial insurance is typically conservative and slow to adapt and a dearth of insurers demonstrating they have made digital a success, means there are no role models to get executives to see beyond their own internal struggles.
Insurtechs are often seen as the interlopers who want to eat the incumbents’ lunch, but should not be seen as a threat, but as potential partners.
Insurtechs lack scale, expertise in commercial and often capital – things that, incumbents are well placed to offer them.
However, there has been a proliferation of commercial insurtechs, making it hard for large incumbents to sort the wheat from the chaff, so many commercial insurers have kept their powder dry – and done nothing.
But the need to digitise is pressing and those who wait may miss opportunities offered by this wave of innovation.
The first step is to become more familiar with the areas in the value chain where insurtechs are concentrating their effort and then prioritise their engagement towards insurtechs in ways that will add the most value to their own strategy.
A growing community
Global investment in insurtechs has grown from $250 million in 2011 to $2.3 billion in 2017.
Though the US pioneered their development, only 38% of all insurtechs are based there. Of more than 1,500 insurtechs globally, 37% are based in Europe, the Middle East, and Africa (EMEA)—in particular, Germany and the United Kingdom.
McKinsey’s Panorama Insurtech database shows that around 39% are focused on the commercial segment, mostly in small and medium-sized enterprises (SMEs).
As the number of commercial insurtechs grows, some will partner with incumbents to provide innovative new products and services, while others will be acquired and integrated into incumbents.
The majority of commercial insurtechs (63%) focus on enabling the insurance value chain and partnering with incumbents.
The revolution will be digitised
Only a small number of insurtechs (9%) are trying to disrupt the insurance market and they do not pose a serious threat to incumbents – yet. But commercial insurance needs to reduce its reliance on human intervention which keeps costs high and limits the ability of incumbents to provide superior customer service (such as risk prevention and loss control).
Insurtechs can help scale and expand risk-prevention services and can extend their services beyond the largest accounts while significantly improving performance and efficiency.
Commercial insurtechs are currently concentrated primarily in two areas – digital interaction and core insurance capabilities – the systems being developed for virtual reality and drone technology, the blockchain, new data sources and advanced analytics in personal lines will be applied to commercial though it is too early to say how much impact they will have.
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Digital Insurer's CommentsThis McKinsey paper reinforces the message that insurtech is not only coming but is here and that if commercial insurance fails to grasp the nettle now, it may rue the missed opportunities.
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