- As insurers and startups innovate, a number of countries are becoming insurtech hubs.
- Germany, the United Kingdom, the United States and Asia are all exploring insurtech in different ways.
- Australia has a fantastic opportunity to join the ranks as an insurtech innovation hotspot.
Insurers have no choice when it comes to insurtech.
According to PwC’s recent global report Insurance’s new normal: Driving innovation with InsurTech, “it’s no longer a question of whether or not [insurers] are involved with InsurTech, rather it is about how they leverage the InsurTech ecosystem.”
Interviewing 189 senior insurance executives from 40 countries, the report found that insurtech is already reshaping the industry and, while previously seen as solely disruptive, it’s now driving innovation and collaboration. The uptake of and partnership with insurtech companies, however, is disparate across geographic regions.
So, who’s doing insurtech well?
Germany: digital broking Nirvana
As with its insurance saturation in general, Germany is developing a thriving insurtech scene. In particular, the country has been producing and/or successfully implementing neighbouring countries’ broking management apps, also known as digital or virtual brokers. Clark, GetSafe, Knip and WeFox (formerly FinanceFox) are just a few examples of these in the personal lines space, with Finanzchef24 a version for business.
Digital broking apps work in a couple of ways, allowing customers to either upload or sync their insurance policies to the app to manage in one place. Users can then renew, buy or cancel policies, as well as analyse the effectiveness of their entire portfolio. These companies have been incredibly successful when it comes to securing funding, but also in gaining integration with incumbent insurers.
Also out of Germany is Friendsurance, the first peer-to-peer insurance company, which paved the way for the wealth of insurtech companies to come, setting up in 2010 – a date that is ancient in insurtech terms. Notable is the way in which Friendsurance capitalises on the use of social media, in this case Facebook, to propagate its user base.
The Brits go bootcamp
Another traditional insurance market, this time London, has also been making its way towards becoming an insurtech hub. Of the 1,200 insurtech companies in the world, 170 of them call the UK capital home, making up 14% of the global ecosystem¹. It’s aiming for more. With a raft of insurtech conferences and the 2015 establishment of Startupbootcamp InsurTech, an accelerator program focused on insurtech startups, there is a definite focus on innovation in the UK.
While there are digital brokers on the scene, insurtech development in London has been much broader, focusing on a variety of different models. Bought by Many, one of the few online group insurance startups, is taking advantage of social media, amassing over 330,000 community members and using the people power to buy and develop its niche insurance products. Guevara and Inspool, on the other hand, are focusing on the peer-to-peer market, pooling money for car insurance policies.
United States of venture capital
Perhaps the most well-known insurtech startup to date is Lemonade, a peer-to-peer and AI-driven insurer out of the US. Due to it being a full insurer, from underwriting to distribution, its impressive backing by reinsurers, and a palatable marketing proposition for customers, Lemonade has been the talk of the town. To many, Lemonade is the insurtech proof of concept, and its success or failure likely to be the deciding factor in people’s minds (correctly or incorrectly) when it comes to the profitability of insurtech.
The other thing coming out of the US scene is money. The vast majority of 2016’s insurtech deals happened there, accounting for 59% of all deals². Two-thirds of these were to seed or Series A funding – which is to say, the money is helping startups to germinate. In the second quarter of 2017, insurtech deals nearly tipped the billion dollar mark, a 248% increase on Q1³. Interestingly, the money may be on the move though, with slightly less than half of global deals coming out of the States in Q2.
Insurtech in Asia is starting to ramp up, with Hong Kong and Singapore paying attention to the startup frenzy coming out of Europe and the US. Asia is an interesting case study for insurance in general, with its high rate of non-insured citizens and relatively new insurance industry in certain parts. What Asia does have is a lot of people and a lot of mobile use, and these two things are fertile ground for insurtech and the digitisation of insurance products.
Secondly, the regulatory landscape is reacting favourably to insurtech innovation. The Monetary Authority of Singapore (MAS) is working with insurers and the British Government to actively promote digital innovation in the region. Part of this openness is utilising sandboxes, with startups able to run pilots and proof of concepts in safe playgrounds. It is in Singapore, moreover, that many of the large insurers and reinsurers are launching their own innovation labs, including Aviva, Allianz, MetLife and IAG.
The Australian insurtech opportunity
Which leads us to the opportunity for Australia. The Australian insurance industry is well established and writes the 11th largest amount of gross written premium (GWP) in the world4. It also exists in the 13th largest economy in the world5, where insurance makes up 5.7% of GDP6. Our cities are attractive to tech talent7. Insurers have a fantastic opportunity to excel in the insurtech landscape.
Geographically, Australian insurtech deals in 2016 accounted for only 1% of the overall global total8. The US took a massive 59% of deals, Germany 6% and the UK and China 5% respectively. Ahead of Australia were Japan, Brazil, Canada, India and France. Rather than seeing this as a negative, I think this shows the opportunity available to Australia.
Globally, the majority of insurers estimate that between 1% and 20% of their revenues are at risk from insurtech, Australian insurers have responded, although modestly. IAG and QBE have both launched venture capital funds to foster innovation9 and Suncorp invested in startup Trov10. But there is room for more headlines. While insurtech remains a hot topic amongst insurers, so far the market seems wedded to a wait-and-see approach. It’s time to start doing.
From a startup perspective, of course, Australia remains a hard nut to crack. Australia’s prudential standards, highly stringent by design, make innovation difficult11. This currently ensures a landscape where startups are not easily able to innovate as full-stack insurers, as only an APRA-approved sandbox environment or serious capital backing and ability to meet regulatory requirements would allow for it, both of which are out of reach for most new businesses. Positively, the Australian Prudential Regulation Authority (APRA) has indicated they are reviewing the licensing framework with a view to accommodating new entrants and products12. For their part, the Australian Securities and Investments Commission (ASIC) already runs a fintech sandbox environment to promote innovation, though is parameters are quite narrow13.
Compliance, while necessary to protect consumers, is a high burden on a startup, and often partnering with incumbent insurers the only way into the industry. As with the headlines generated from Suncorp’s investment in Trov, this can lead to great partnerships and I hope to see more of these in the future. At the same time, this investment shouldn’t be seen merely as acquisition or consumption, but one of potential new ways to interact with and provide the best cover for customers.
Where to from here?
Insurtech is bringing new models and technologies to insurance. It’s also enabling the incumbent industry to overcome challenges and create engaging customer experiences. These things will only happen with a committed will to move them from theory to reality. In a country that dedicates itself to innovation, and where we adopt technology quickly14, it seems a no-brainer to actively pursue a name in the burgeoning insurtech scene.
If Australia can bring the ecosystem together – from incumbent insurers, startups, regulators and customer experience professionals, imagine the transformative force that could be brought to fruition. Better and more diverse customer experiences could lead to growth in consumer trust. By using insurtech to put the customer first, to educate and reassure, the understanding of why insurance is beneficial could move the needle from grudge purchase to necessity.
Consumers and insurers alike would benefit from such a world. As a country, why not try and build it?
To read more on the state of insurtech, download PwC’s 2017 report Insurance’s new normal: Driving innovation with InsurTech here.
6 OECD (2017), Insurance spending (indicator). doi: 10.1787/adb73055-en (Accessed on 14 August 2017)