Insurtech companies embody technical innovation, optimize business processes and drive digitization forward. Most providers may congregate in the consumer market, but more and more of these startups are now moving into commercial and industrial insurance.
Ignore them or invest in them? Where insurtechs are concerned the insurance industry has long made up its mind. In 2017 investors all over the world put around USD 1.6 billion into insurtech companies. In Germany alone over USD 74 million was invested in insurtech startups. These enormous investments are exceeded only by the expectations placed in these new players in the ballpark. Faster, more efficient and more customer-friendly are the promises the new market participants make as they compete with established insurers. Some experts fear that the ambitious startup companies will tear the industry apart.
Insurtechs: agile, but with no market knowledge
The gauntlet has been thrown down, but what exactly do the insurtech firms have to offer? The startups have hitherto relied mainly on B2C services on the sales side, such as offering to compare tariffs online or via smartphone apps for end customers and to take out new policies for them. Their new offers include digital folder and administrative systems for insurance companies such as Knip or Clarke. The fundamental advantage of these insurtechs is “digitization first” Insurtechs do not first need to tackle hurdles such as outdated IT systems. Instead they quickly establish a market presence and adapt thanks to their lean structures to the requirements of their customers and partners. This flexibility is especially helpful for traditional insurers, who are slow to implement innovations.
There are disadvantages too, however. Many insurtech firms have difficulty in moving successfully into the insurers’ core business. A lack of industry knowhow is one of the reasons for this; the lack of an offline sales network, which many established insurers have, is another. A PoS like the insurance agent round the corner offers personal customer service that an insurtech cannot as a rule provide. Another factor is the uncertain future of newly established companies in the market. The competition has already begun and there will be winners and losers.
Digitization: the quest for the Holy Grail
Along the insurance value chain there is a great deal of potential for novel solutions – from underwriting and inventory management via claims management to billing. That is why the industrial sector in particular is where opportunities open up for insurtechs to develop market gaps. Maybe sending out a dove of peace is much more worthwhile. Cooperation between insurtechs and traditional insurers rather than open competition could prove to be the Holy Grail in the B2B segment.
While successful insurance companies contribute their expertise in the industrial sector the startups put points on the scoreboard with their IT knowhow. They offer the exclusive option of integrating new technology into the insurers’ domain. Insurers cannot accomplish that withot external assistance; they frequently lack the IT competence. Both sides benefit from this model. Cases in point are new trading platforms like finanzchef24 or Sobrado, which collaborate with established industrial insurers – or are already owned by them.
Insurtechs vs. Insurers: solo or duet?
For a cooperation the partner must fulfill certain requirements – both in mapping the portfolio and where the technical preconditions are concerned. Only then is a basis established to enable the digital infrastructure to interlock on both sides. What is important is for the insurtech company to understand its partners’ objectives. The following qualifications also matter:
- A high level of product competence
- Great customer access
- Ideal customer experience.
Depending on the type of business and the product offering either an insurtech or an established project company is more suitable for a digitization offensive from the insurer’s viewpoint. The factors mentioned above are a help in the finding phase. Instructing a tried and trusted IT company comes at a price. The project company offers a great deal of professional competence along with tried and tested structures and workflows. That provides safety and makes collaboration easier. The insurtech, in contrast, scores points with fresh and maybe unconventional ideas. The final decision will depend on the individual company’s situation and on how the industrial and commercial insurer plans to position itself in the market. It is, after all, legitimate to be interested in insurtechs primarily for strategic reasons with the aim of maximizing profits as a secondary consideration.
The main focus of cooperation could be on digitizing and thereby automating sales processes between the broker and the insurer. As a rule, for example, brokers get quotes from industrial insurers by e-mail, fax or phone. If the broker were instead able to submit inquiries to the insurer’s Web portal and receive an automatic response, that would reduce his effort and expense significantly. The insurer would also benefit by having established a new sales channel for standardized products – an important objective against the background of digitization.
Portal does not, in this case, mean a generic portal for all sales partners but rather many small, partner- and sales context-specific digital points of sale. In one way or the other a Web solution that is customized for the customer takes shape that the insurtech implements – a win-win situation for the partners.
Conclusion: The course has been set, quo vadis insurtech?
Many questions still remain unanswered, especially for industrial insurance. How will the insurtech companies fare in the market and shape it? Which kinds of policy will determine the distribution? Will there in the medium be a marketplace that, much like Amazon in the eCommerce sector, develops into an indispensable distribution channel?
As in every industry, market mechanisms will ensure that there is a natural adjustment – and some insurtech firms will go by the board and disappear. What is clear is that if they are to achieve lasting success insurtechs must ideally combine insurance administration knowhow and IT expertise. And they ought to cultivate the nature of their business, meaning that insurtechs are able to map individual agreements between the insurer and the broker as efficiently as possible. The technical edge is of crucial importance in that it enables insurtechs to take an innovation step from which every established insurer can benefit. For insurtechs it is important – as it is for every industrial insurer – to build up a reputation so that enterprises have confidence in them and (continue to) invest in them.