Regulation will protect big insurers from insurtech disruption
Insurance is a heavily regulated market which makes it very difficult for new entrants to severely disrupt it, according to James Willison, managing director at WCL, a technology vendor providing data transfer and messaging systems.
Willison argued that insurtech cannot hope to compete with the large insurance companies head to head because of the cost associated with regulatory compliance, and the size of the balance sheet needed to write insurance coverage at any sort of scale.
Willison said: “Insurance is required to enable businesses to mitigate their risk. Some lines have been especially innovative, such as cyber.
“But an insured needs to know it is dealing with a financially strong partner that is going to be in a position to pay out if it makes a claim.
“An insurtech startup without a strong balance sheet is not likely to inspire that confidence.”
Nor are the big technology companies that can compete with the insurance companies in terms of balance sheet going to upend the business, said Willison.
“Insurance is not going to be revolutionised by Amazon or Google they just aren’t in a position to deal with the myriad of regulation, including state-by-state regulation in the US.
“Those companies have a lot of data about their customers, but they don’t have the data they require about larger commercial risks,” he explained.
However, the smaller technology companies do have their advantages for example in not being weighed down by legacy technology, allowing them to develop more innovative platforms that are easier to use and deliver faster results. That will allow them to make a big impact on insurance, he said.
For example, WCL has been working to streamline the information flow between re/insurers and brokers. It enables counterparties to settle discrepancies between prices billed and prices booked more quickly, speeding up premium flow.
“Where insurtechs can have a real impact is in helping insurance companies better understand their clients, and helping them access new markets.
“The disruption is going to come from whichever incumbents are best at adapting to use the technology that is available,” Willison said.
“Technology can improve the customer experience, it can improve the speed of claims processing and the accuracy of underwriting decisions. All those improvements will be required to drive growth in the insurance industry.”
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