Chris Sandilands points to a worrying thought; that after a spurt of innovation carriers, MGAs and brokers are slipping back to maintaining the status quo. He goes on: -
"..was 2020 the year, and Covid the catalyst, that catapulted us into the future of insurance? We believe not, for two reasons."
First, 2020 experienced an exceptional risk profile, where the risk of not changing exceeded the risk of moving fast and making some mistakes. We saw carriers like Coop Insurance adopt a new digital claims platform after pondering on change for years and then though acquisition joining the Markerstudy Group. Major insurers buffeted by a surge in Business Interruption Claims look to and deploy agile no-code claims platforms. But Sandilands sees risk reverting to the longer-term norm and insurers reverting to a more cautious approach especially in a hardening market.
Sandilands continues; "Second, we question to what extent real change has occurred in 2020. Steve Hearn, CEO of broker Corant Global, maybe put it best recently when he said that the insurance industry has so far “digitised its existing business model”, but not challenged it. "
Telematics and UBI has been around for an age and yet has not really changed insurance models except for that for younger drivers. DLG partners with The Floow to introduce 'nudging theory' into a more interactive products whilst Covea partners with Vitality on a similar digital path. More evolutionary than revolutionary
Back to Sandilands:
"But change in insurance is slow. Even Lemonade – the posterchild InsurTech – had only US$213m of in-force premiums at the end of 2020 despite having raised US$480m of investment.
And this is exactly what should worry shareholders and management teams with a 5+ year horizon. As we explain in the report, it took years before UK insurers understood the impact of price comparison websites on their businesses and even longer to develop the capabilities needed to respond. Industry losses during this period accounted to many billions.
President Eisenhower noted that “urgent [issues] are not important, and important [ones] are never urgent.
Take that connected car (and coming truck) evangelist Elon Musk. As L&G Chief Innovation Officer Maarten Ectors says.
"Tesla is going to make normal car insurance irrelevant because unlike traditional insurers they know exactly when you buy a new car [and with one tick box can allow you to add insurance], how you drive [and adjust your monthly premium] and can influence risk by offering you cheaper insurance if you turn on autopilot more often or adapt your driving style.
All of this integrated into the car control system. Likely all other car manufacturers will copy this, accelerating the demise of traditional car insurance. A digital transformation is not enough, car insurers will need a digital revolution if they want to be around in a decade.
As if that were not enough of a wake-up call he recently wrote of a major potential disruption. Remember that this is from someone sitting at the heart of the insurance industry. He describes the looming threat of "DeFi".
As a taster read this.
The biggest future disruptor: decentralised finance
None of the previous disruptions though touches any of the core foundations of the financial industry. They just make existing products easier for customers. Decentralised Finance, or DeFi, is a totally different type of disruption. It focuses on how to do finance without needing a central bank, a retail bank, an investment bank, an insurer and even a stock exchange? In the 1990’s Jeff Bezos left his well paid investment banker job to start Amazon because he saw the Internet was growing at over a 1000% per year. DeFi from June 2020 till now has grown with over 3500%.
Read his complete article here.
Technology vendors tend to get caught up in the technology itself rather than the outcomes they deliver and the way these leverage future potential and solve current challenges. How often do you see such vendors shaking their heads and saying, of potential customers, "They just don't get it" when in fact they are more intent on telling prospects all about what their technology does and how it works. That classic approach of "Let's talk about "OUR" strategy and story first" rather than discuss the challenges, strategies and visions of the potential customer.
I can understand the frustration of carriers, brokers and reinsurers listening to that when there are these big issues to face.
What do you think about all this?
2020 was the year of many things, including clichés like “five years of digitisation in five weeks”. Restaurants swapped tables for delivery services and ecommerce grew its share of retail by 11 percentage points in the UK – close to the amount it had grown in the previous 10 years. Data from Willis Towers Watson shows that investment in InsurTech has continued at pace. Total investment hit record highs in 2020 at US$7.1bn raised in 377 deals. So was 2020 the year, and Covid the catalyst, that catapulted us into the future of insurance? We believe not, for two reasons.