Insurers destined to be joined at the hip with InsurTechs

When InsurTech startups first appeared on the scene, many incumbent carriers may have seen them as existential threats. But given time, panic attacks have generally given way to a more sober appreciation of how disruption can be leveraged to a particular carrier's advantage via collaboration with the new kids on the block.

Indeed, most insurers are working together with InsurTechs these days to capitalize on new applications, algorithms, and mobile apps, rather than worrying about being displaced by more innovative outsiders. That's why members of the legacy insurance industry were able to mix so freely and easily with the expanding field of InsurTech players at a recent conference in Las Vegas. Incumbents wanted to hear what their competitors are up to, see with their own eyes what kinds of solutions are available or on the drawing board, as well as meet face to face and talk deals with developers.

Digital age partnerships

Wandering through the exhibit area at InsurTech Connect, you could find lots of shiny, new toys for insurers to play with, from facial analysis for accelerated life insurance underwriting, to artificial intelligence bringing virtual assistants to life, to blockchain applications backing smart contracts. But beyond the emergence of intriguing tech tools, my chief takeaway was that a more fundamental shift is underway that could alter the very nature of insurance. Tech companies may not displace legacy insurers anytime soon, as once was feared by some, but partnerships with InsurTechs will almost certainly be required if carriers are to reinvent how they do business so they remain relevant and competitive in an increasingly digital world.

The conference featured multiple discussions about how:

— Data sources are becoming more transparent, and data itself more of a commodity rather than a precious, scarce resource. The differentiator will be what insurers can do with all the new data they are collecting, depending on the analytics and models they develop to come up with actionable results. Can insurers drink from the deepening well of data and convert all that information into something not just useful, but truly transformative?

— Insurance policies will become proactive, rather than remain reactive. Instead of passive contracts offering after-the-fact coverage for losses, carriers and their InsurTech partners will look to control risk factors in real time — activating or shutting down sprinklers, turning on the heat, monitoring video surveillance, or automatically pulling a sensor-equipped car with mechanical problems to the side of the road. This is much more intimate and interactive than the traditional, transactional, arm's length relationship to which insurers are accustomed.

— InsurTech will facilitate more frequent (and more positive) engagement with consumers. One speaker characterized today's customer-insurer relationship as akin to a trip to the dentist, interacting only when you have to — usually just once a year for a checkup prior to renewal. That is, unless a loss occurs, which may turn out to be an unpleasant experience if claims are disputed. The question is whether carriers can leverage InsurTech to create more of a "toothbrush experience," where they engage regularly and routinely with customers to keep the worst from happening, rather than only be in touch after a loss, thanks in large part to the power of telematic connectivity.

The big picture

Clearly, a new dynamic was in action at the conference. Insurance veterans of the pre-digital age appeared to mix rather seamlessly with ponytailed tech startup founders. On hand to help with introductions was a growing army of intermediaries — accelerators and incubators scouting the frontier for viable startups, trying to cull the herd by separating hype from reality, and ultimately looking to facilitate deals between the old and new worlds of insurance. Outside investors were also on the prowl, including venture capitalists and private equity firms. It was a microcosm of the emerging insurance ecosystem come to life, far more diverse in terms of the skill sets, capabilities, expectations, culture, and personalities on display.

The insurers I encountered at the event seemed confident that the new breed wouldn't be running them out of business anytime soon. They were intent on leveraging what InsurTechs had to offer to cut expenses, improve customer experience, and bolster their top and bottom lines. Meanwhile, the InsurTech pioneers on hand spoke about insurers as prospective clients, investors, and acquirers, rather than as old-school obstructionists ripe for displacement. Both approached transformation not as erecting impenetrable fortresses on their own, but as a team exercise to build mutually beneficial relationships, to the ultimate benefit of consumers and the industry as a whole.

That's not to suggest that InsurTechs and incumbents won't lock horns here and there, or that a game-changing disruptor will not suddenly loom on the horizon. But speakers from both the legacy and startup sides emphasized this doesn't have to be a zero-sum game or winner-take-all confrontation. Each spoke optimistically about how they might help one another navigate the turbulent waters ahead.

I found it quite remarkable to have seen so many intriguing InsurTechs under one roof, led by brilliant and daring entrepreneurs. It gave me great hope for the future of insurance, particularly in helping recruit a younger demographic into an aging industry. But I was even more impressed to see tech-savvy legacy insurers holding their own in a cutting-edge crowd. In time, I expect the lines between this symbiotic pair to blur as insurers and InsurTechs become joined at the hip, neither able to survive nor prosper without the other's support.

Sam J. Friedman ([email protected]) is insurance research leader with Deloitte's Center for Financial Services in New York, and the former Editor in Chief of National Underwriter's P&C edition. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. These opinions are his own.

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