No hiding place: the technology firms ready to become insurers
Innovation and disruptive change are a couple of perhaps over-used buzzwords in the risk transfer industry right now. Already on the back foot from a long period of low interest rates and the resulting poor investment returns and a soft market, re/insurers are also being barraged by a dizzying array of new technologies with the potential to change and improve every aspect of their business.
In fairness, many companies are coping with the ‘insurtech revolution’ well. Many have put themselves ahead by partnering or investing in the technology ventures that look most likely to have legs in the long term.
But insurers and reinsurers cannot afford to rest on their laurels, as Paul Cuatrecasas, the chief executive of Aquaa Partners, a specialist investment bank that advises established companies on acquiring technology companies, warns. There is a very real danger that such innovations could change their market and business model in ways they might struggle to imagine. And there is also a possibility that some technology firms could find ways of cutting them out of the loop completely.
“Established insurers can’t afford to believe they have insurtech covered,” Cuatrecasas warns. “Many insurance firms may feel prepared for the future. They’ve invested in new technology and have begun experimenting with emerging tech, such as blockchain, artificial intelligence and big data.
“But are insurance firms prepared for the biggest threat of all? Are they prepared for technology companies becoming fully fledged insurers in their own right? I don’t believe so.
“If the biggest insurers don’t prepare themselves right now, they’re at serious risk of being caught out in the next several years.”
A risk that is growing
Insurtech is booming. According to tech market analyst CB Insights, startups raised $1.7 billion in 2016, the highest annual total to date. And this investment explosion shows no signs of slowing. In the second quarter of 2017 there was a 248 percent increase in insurtech funding, according to Willis Towers Watson.
Cuatrecasas notes that most of the big insurers saw the threat coming and have been active in the corporate venture capital (CVC) market. They witnessed how fintech stormed the doors of the banking and financial services industries and sensibly got started with protecting themselves early, he notes.
This awareness has led to a number of high-profile partnerships. Chubb has partnered with Coverhound; Liberty Mutual with Next Insurance, and Munich Re with Slice, for example. Cuatrecasas says this scramble to partner reflects growing concerns about the impact of insurtech. More than half of global insurers estimate that about 20 percent of their turnover is threatened by insurtech, according to PwC, and 55 percent say innovation must be part of their long-term strategy.
“So far, so good; insurers have acted fast and used their predictive experience to assess how technologies can squeeze new efficiencies,” Cuatrecasas says. “On distribution, they’ve leveraged digital to expand their reach. On contracts, many are examining blockchain to see how it might be used to create self-executing smart contracts and audit-trail high-value items such as diamonds and artworks.
“On analytics, they’re looking to big data and the internet of things (IoT) to collect and analyse richer data more efficiently.”
He also warns that insurers may be missing the dangerous bigger picture. Despite insurers’ awareness of the value of technology, many could be missing the wood for the trees.
“Are they concentrating so hard on how technology is disrupting the supply chain that they’ve missed the more significant wider risks?” he asks.
