Insurtech and incumbent carriers: Partners in progress
From a consumer standpoint, insurtech increases convenience and improves the user experience.
In recent years, the insurance industry has seen unprecedented levels of merger and acquisition (M&A) activity, especially in the insurtech arena.
With new demands from a younger customer base and clear benefits to firms and consumers, it’s clear that insurtech acquisitions are the key to succeeding in an ever-evolving field.
The increased demand for insurtech
Like other sectors, the demand for virtual and remote options from insurance providers was accelerated by the COVID-19 pandemic. However, the industry was trending this way for a while, as innovations in technology in the last 20 years have slowly raised the bar in terms of virtual options for consumers.
Millennials and Gen-Z, who are digital natives, have high expectations for mobile and web-based options. According to a study by PricewaterhouseCoopers (PWC), 41% of consumers surveyed said that they are “likely” or “more likely” to switch insurance providers because of a lack of digital capabilities, while 15% said that they found a lack of digital options to be the top challenge when interacting with their insurer. Clearly, digital options are important to consumers.
This forced insurance companies to ramp up digital transformation efforts in order to adapt to these changes. To do so, many must work with or acquire insurtech firms that specialize in such technologies a artificial intelligence (AI), data analysis, blockchain and other digital tools to overhaul and revolutionize various aspects of the insurance business.
Changing perceptions
As recently as five years ago, insurtech was perceived as a threat to the insurance-industry status quo rather than an opportunity for innovation. Incumbents saw insurtechs as technologically savvy startups that were attempting to cash in on a younger market that they themselves were unable to serve as easily.
However, this attitude began to shift in recent years. For instance, 2020 saw 81 insurtech acquisitions take place, despite the pandemic. That was the highest on record at the time.
Insurtechs should not be viewed as competition to incumbents but instead as potential collaborators as larger, established firms have the capital to fund startups and provide the resources that will help them grow.
Benefits aplenty
With insurtechs, traditional insurers are moving away from the days of pen and paper to a largely online model. Claims can be filed online to be promptly analyzed with the latest software and AI tools for the quickest and most accurate assessment. This eliminates the need for an employee to search extensively through a claim to ensure accuracy. AI also can help improve premium and pricing structure by better analyzing clients and using predictive information to more accurately determine payment structures.
Blockchain is another innovation that assists firms in record-keeping and security. Rather than physical copies of records, blockchain can keep sensitive data safe by encrypting it and “marking” it to verify its accuracy and validity. The significance of the improvements to efficiency cannot be understated; as few as ten years ago, claims filing and transactions done on pen and paper could take weeks, if not months, to fully process. AI and blockchain can ensure accuracy, efficiency, and security.
From a consumer standpoint, insurtech increases convenience and improves the user experience. Online policy comparisons, mobile policy management and on-demand insurance would likely not be possible without insurtech. At the end of the day, these innovations can make the insurance experience more streamlined for consumers.
Making the most of M&A
The insurance status quo will adjust as insurtechs allow for massive overhauls to decades-old systems. Moving forward, the ability to continue innovating and become ever more adaptable to industry changes will be what differentiates successful firms from the ones that fail.
Ezno Terrell is a junior at the University of North Texas with a major in mathematics with a minor in risk management, insurance and actuarial science. Terrell is a winner of the Wholesale & Specialty Insurance Association’s Spring 2022 White Paper Contest. This article is an abridged version of work that first published at wsia.org.
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