Disrupting the insurance market?

Last week we heard about Travelers acquiring Trōv’s digitals assets, this week Hub International partnered with Bold Penguin to acquire Insurion Holdings to build a stronger market position. Also announced this week, Aon has acquired Tyche, a technology platform for risk and capital modeling. Aon will integrate the Tyche capabilities into its broader client dashboard

In other news last week, Lemonade and Root, companies that have set out to disrupt the insurance industry, published their insurance figures, which were a disappointment for many. As commented by on one of the many posts on the matter, it seems that underwriting, even with AI is not so easy after all.

These InsurTech announcements caused quite some discussions around the community that went as far as asking if we should feel betrayed by the Insurtechs.

What happens when there is disruption

The photographic industry went through two disruptive changes in a relatively in under a decade. With digital cameras becoming widely accessible to the public, the need for film got eliminated and shortly after that, mobile phones and then smartphones started incorporating cameras into the devices, eliminating the need for the family camera.

AGFA tried to deal with the first change by creating a new company AGFAPhoto in 2004 only to go bankrupt in just 7 months. Today AGFA still exists but does not deal with the consumer market any more, servicing the printing industry and the healthcare sector only. Camera manufacturers such as Canon and Nikon needed to focus on other things as well, the camera not being a household requirement anymore, showing huge shrinkage of their markets from 2013 onwards.

Less so in the insurance industry

We probably will not see the AGFA scenario happening to insurers, at least not due to disruption. Insurers have gone bankrupt, though typically due to losses incurred by bad investments, competition, or economic climate like in 2008.

The entry of direct insurers in Europe in the 80s, didn’t cause any of the incumbents to crash. Some market share was won, though there was adaptation in the market, there is almost no insurer that does not have a direct insurance arm today, in one way or another.

The digital transformation of the last 25 years, which is a change instigated from outside the insurance market, has driven insurers, direct and non-direct to different levels of digitalization.

So what is disruption for Insurtech?

In my view there are two types of companies that call themselves Insurtechs; technology companies providing a variety of solutions to the insurance industry and insurance entities (insurers and MGAs) that are using technology to manage their business. Lemonade, WeFox, Root, Hippo and others fall under the second category, they are what I would call technological insurance companies (let’s call the TIC from now on). TICs will use their technology for their own benefit and not sell it to competitors in the market. The entry if TICs to the market is comparable to the new direct insurers of the 80s, they managed to take some market share, but also were the incentive for incumbents to change/adapt the way they work.

In a study from 4 years ago by IBM, called the friend or foe study, they tried mapping the strategy of InsurTechs and how it the incumbents should relate to them.

We can see clearly from this study that there is no market disruption, only small areas where disruption may happen.

Disruption in the insurance market

That incumbents won’t go under, that is clear. It doesn’t mean that the aren’t areas that are changing. Embedded insurance, as mentioned, is changing the distribution of insurance, and is starting to have a major impact. The more cars become autonomous, the type of insurance and liability is changing. Using AI in different areas of the insurance chain, is increasing efficiency and will be expected in the market place, meaning one will lose market share if you are less efficient.

Now back to AGFAPhoto, if in 2004 they had realized that they were not in the photo capture business but in the storage business, maybe they would have invested in digital storage and later cloud storage, and instead of going bankrupt would have becoming memory card providers and also competing in the cloud storage arena with AWS and Google today?

Bottom line

Disruption is more likely to come from outside the market than within. If you are an InsurTech or a TIC don’t be so quick to announce that you have come to disrupt the insurance market, be ambitious, but stay humble. There are plenty of great of ideas for sure. Though in the end, you may take a bit of market share or sell your innovative products well, you could even become a unicorn,  though after a few years, someone else may come along and beat your solution or gobble you up by acquisition.

Insurtech in need of help in product, strategy, process?

Insurer looking for technology or implement it?

Drop me a line contact@gilmour.info or +972-54-2190545