Grow smarter: How disruption in insurtech impedes growth
Focusing on collaboration, rather than disruption, will be the path forward for insurtechs.
A few years ago, nearly every insurance conference hosted a panel or workshop about disruption, detailing why the industry was about to be completely reinvented by what would become called “insurtech 1.0.” Change was needed in our industry whether we liked it or not — an industry that had become infamous for its legacy systems and reluctance to adopt modern technologies.
Alongside this concept, and particularly as public enthusiasm towards insurtech 1.0 grew, so too did the idea that to be successful insurtechs must be disruptive and competitive to be effective. As time would come to demonstrate (and as I think we now realize), this is not the case.
Disruption for disruption’s sake puts the industry at risk
The original wave of insurtech 1.0 focused on disrupting and displacing the existing insurance incumbents seemingly as an end to itself. This was based on the idea that existing insurers had not invested in new, creative underwriting models that leveraged alternative datasets or had left their customer experiences woefully inadequate for a digital-native generation. As a result, they were a prime target for a challenge by new disruptive competitors who thought they could better execute on these issues.
The reality was that implementing barriers to purchase — what these disruptors might call “adding friction in the user experience” — was a deliberate approach to avoiding adverse selection. Enthusiastic entrepreneurs confidently tore down Chesterton’s Fence, then found themselves on the wrong side of a bull that the industry had long ago fenced in through standard insurance operating procedures. Insurtech 1.0 ended up enduring massive loss ratios as fraud and bad risks slipped through the cracks created by sleeker, more simplified systems.
Put in terms that a Star Trek fan may relate to: The normal paradigm is to have underwriting sitting at the helm of the USS Enterprise acting as Commander Kirk while technology is in the engine room playing the role of Scotty, shouting “I’m giving her all she’s got, Captain!” For some reason there was a moment at peak insurtech 1.0 when we convinced ourselves that Scotty should be at the helm, running the USS Enterprise and Kirk could be left behind on some strange planet to wither away.
As the underwriting results of insurtech 1.0 began to develop and growth plateaued, venture capitalists began to reconsider the original confrontational approach — perhaps the industry wasn’t naive as they had first thought. Outcomes and exit strategies became more important, which influenced the types of companies that received investor attention and funding. Also, the previous disruptor mindset began to diminish, as a new cohort of founders came to market with more of an enablement mindset — seeking to enhance the proven systems of the industry without compromising customer experience and underwriting systems.
As more thoughtful minds began to prevail, we’ve entered what many call “insurtech 2.0” and it has become clear that the most fruitful path forward is to begin to focus on collaboration and enablement, rather than competition or disruption for disruption’s sake. This new batch is focused on creating technology tools to empower insurance professionals rather than trying to put them out of a job. From agency management systems and policy administration systems to new digital TPAs, this wave of insurtech 2.0 provides the best of both worlds — insurance professionals remain at the helm of the ship and can navigate choppy waters, while the technology professionals work to build and enable the tools the insurance professionals need to do their job.
Forget competition, it’s time for collaboration
Now with Kirk back at the helm and Scotty in the engine bay, the best opportunity forward is to find areas of collaboration between great technologists and insurance professionals. The good news is that the opportunities are plentiful and provide opportunities to make enormous efficiency gains as we head into a potential recession amid escalating rate hikes. Our industry will be pressed to do more with less and the only thing that’s ever made that possible has been technology.
Incumbent insurance companies have a fantastic opportunity to lean in with the next batch of insurtech 2.0 founders who are looking for collaboration partners.
These insurtech startups have much better product velocity (i.e. how quickly they can build products and release features) and reduce the overall out-of-pocket costs for nondifferentiated technology capabilities. Anyone who’s been through an internal product build at a large company will know precisely how long a one-month project can take — months turn into years and budgets balloon while milestones are missed due to competing priorities.
By partnering with insurtech 2.0 incumbents can help invest in more productive assets without needing to worry about maintenance costs for low value, rote tasks. We’ve already seen some early fruit from this approach from people like FunctionalFinance for turnkey bill pay functionality/premium finance or PolicyFly with policy administration for MGAs. One of the biggest success stories in insurtech over the past year was the explosion of AgentSync onto the insurtech scene. Their core offering was to enable carriers and MGAs to better manage their producer license information and reduce the headache of chasing data across multiple states. While the subject matter may not be sexy, it’s impactful.
A rare opportunity
What we have before us is a rare opportunity for a triple win if the industry can focus on collaboration and partnerships flourish with insurtech 2.0. Insurance companies gain faster product velocity without the need to navigate internal politics or deal with ballooning maintenance costs. Technology companies gain customers by focusing on improving the productivity of professionals. Lastly, the end customer wins because as everyone focuses on doing what they do best, expenses can fall without compromising on product or functionality.
While there are plenty of reasons to be concerned about the future, I’d argue that one area I’m outright optimistic about — it’s insurance. Rather than consuming resources on internal turf waters, it finally seems that our industry has all the oars rowing in the same direction. If the best engineers focus on amplifying the capabilities of the best underwriters, brokers, actuaries, and agents – what’s not to be optimistic about?
That’s a starship I’d ride on any day — beam me up, Scotty.
John Horneff is the founder and CEO of Noldor, an insurance data company reimagining how carriers, reinsurers, and reinsurance brokers work with MGAs. Rather than building and maintaining data pipelines in-house, Noldor’s platform provides turnkey access to clean, structured program data — differentiating MGAs and enabling their partners to spend less time processing data and more time acting on it. For more information, please visit www.noldor.com.
Opinions expressed here are the author’s own.
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