Harmony arises from old and new singing the same tune
Google ‘fintech’ and you will get nearly 10 million results. Googling ‘insurtech’ brings up around 136,000. It seems that the techies don’t fancy my old industry.
This is hardly surprising bearing in mind the 300-year history of modern insurance and the accumulation of regulations serving to constrain innovation and provide barriers to entry for startups. It is hardly surprising also, that existing providers hampered by their legacy issues and systems are not churning out disruptive changes.
This point was raised and discussed in a panel session at the 2017 Guernsey Insurance Forum, with the suggestion that, historically, startups had not been able to engage and make progress with incumbents with regard to implementing their ideas and technology, but the pressure nowadays to adapt and develop meant that incumbents were more open to interacting with startups.
“A good few years ago there was a disconnect between startups and the ability to actually make their new companies and ideas relevant,” James Sore of equity investment firm SyndicateRoom said.
“When it really takes off is when the incumbents are brought into that process, so they can actually implement the concept.
“The incumbents, the existing providers, are still around for a reason—because they manage risk, but you also have the startup mentality of ‘I can do anything and change the world’. It’s about finding the balance between the two.”
Of course, there have been developments in the past but transformational changes have been few and far between. Direct Line’s telephone-based service in the 1980s was new but it was not until online consolidation sites arrived in the 2000s that traditional broking and local insurance offices came under real pressure.
This has driven the development of motor insurers such as First Central Group, the Guernsey-based online UK motor specialist. First Central’s success over 10 years has come from focusing on maximising the competitive benefits of operating solely online and concentrating on clarity of cover and simplicity of underwriting processes whether via consolidators or its own website.
First Central’s ability to use reinsurance from the traditional wholesale market to build capacity into its business model creates the scalability necessary in an insurance startup, while the consolidator platforms provided routes to market to gain valuable market share in its early years of development.
However, at the heart of the business has been a commitment to developing the use of technology in the business to generate efficiency and enhance the customer experience. This commitment continues as the firm's development team in Guernsey focuses on how blockchain technology can be used in the business and how technology and the use of artificial intelligence can enhance the claims process.
As with all tech-based businesses, development of the technology is never finished.
For some years, motor insurers have offered reduced premiums for safer drivers as measured by onboard monitoring; new data analysis techniques will continue driving more technical pricing models to match risk and premium more accurately.
While this assists with risk selection, it is hardly disruptive to customers. In general, premium rates are very low for most average purchasers and more accurate pricing is unlikely to help those at the sharp end of risk analysis, such as young male drivers.
Similar stories of disruptors collaborating with established players are typical not only in insurance, but across other fintech areas. Aviva’s acquisition of another startup with Guernsey roots, Wealthify—an online robotic investment advice specialist—is an example.
It may seem odd that two major successes in the area have come out of a small island such as Guernsey, but there are good reasons for this.
