InsurTech funding has total USD 16.8 billion over the last seven years (2012-2019) accordingly to Willis Towers Watson, with quarterly investment levels approaching USD 1.5 billion per quarter since Q3 2018. Globally, there are approximately 2,500 InsurTech companies active today. Despite being a relatively new subset of the insurance industry, there has already been a major transition in InsurTech over the last five years. Initially, start-up companies like Lemonade thought that they were going to be insurance companies themselves. However, due to the complexity of the insurance industry (regulation, distribution models, underwriting profitability), InsurTech companies are now trying to partner with incumbent insurers rather than trying to disrupt the industry alone.
In a survey of insurance executives, 63% said cloud-based technologies were currently having the greatest impact on their insurance business. When asked which technologies will have the  most impact in three years times, more than half said blockchain (both internal applications and customer-facing).
Insurance companies need to consider four things as to why they would need technology. Firstly, will it strengthen and improve their business, such as operational platform, distribution or customer experience (the most important for mutual and membership businesses)? Secondly, will it support growth and diversification: of business lines, geographically, customer base and culture? What are the known inefficiencies eg legacy systems? Finally, what are the opportunity costs – ie the cost of implementation/integration versus the cost of doing nothing?
In terms of effectively embracing technology transformation, WTW identify five steps or stages:
- Baseline identification – understanding your business in terms of incumbent technology and legacy systems.
- Facilitating integration – understanding the landscape to engage with the right partners to support your business.
- Evolving transformation – beginning the journey with basic processing and integration (online customer portals, apps).
- Maturing transformation – conducting a bespoke strategy for your business and exploiting own capabilities with advancing technology (big data, predictive analytics, Internet of Things).
- Optimised transformation – perfecting a highly-tuned model (AI, machine learning, data optimisation).
Despite the customer focus for mutual insurers, embracing technology should not just be about customers as there are other opportunities in aligning with InsurTechs, such as investment potential,as well as opportunities for capacity provision and fronting arrangements with MGA-type start-up companies. Also, by partnering with an InsurTech, it could provide an established insurer with a quick and efficient (agile) way to build a new product ready for market and assist with branding through a strategic alignments of interests.
