Last week I was in London at the Innovate Finance Global Summit, where we discussed the big issues of innovation in the finance sector, which has been “attacked” by several startups that have already taken a relevant part of the business (PayPal, Revolut, Wealthfront, etc.). However, it seems to me that even before Fintech, the policy of the ECB and other entities will continue to create immense difficulties for what is left of Portuguese banking, so I will move on to another sector that catches my attention. Insurance tech or insurtech, the technology companies that are challenging insurers.
The insurance industry, characterized by large companies with reasonable margins, has been protected by barriers to entry such as legislation and the large capital required. However, these barriers are becoming insufficient if we consider that startups often manage to bypass legislation (Uber and Airbnb?), and on the other hand, access to capital is not so difficult. Oscar, a New York-based health insurance startup, has already raised about a billion from investors such as Goldman Sachs.
Who has ever heard friends say, “how nice it is to buy insurance?” The experience and products are usually mismatched to the needs of today’s consumer, in part, because of a lack of customer focus. And this is where these startups come in. Focused on the customer and with better (and often cheaper) technology, they can offer better customer experiences and react faster to the market. This sector, which in theory should have an advanced information and data processing, in reality and in most cases has been stuck in in time and doesn’t have the complete profile of the clients to allow them to personalize the services. And when we talk about data it’s not only startups that threaten, Tesla, for example, is already starting to sell insurance with its cars. Why should a person who drives a car 100 km per month pay the same as another who drives 2,000 km? Google (Alphabet), also a data specialist, is starting to have a relevant insurance investment portfolio. At the same time, new business models and services are also appearing: value (rather than price) comparators, usage-based insurance, p2p insurance, internet of things, and cybersecurity insurance, among others.
But with so much financial capacity and known brands, why don’t the insurance companies react? The big challenge that the big insurers must overcome is inheritance. If technological inheritance is difficult (since many of the new developments are expensive and slow), the cultural and human resources are even more complicated. Insurers, in order to change, need people with digital experience and a strong motivation from the general management to take on these transformations. At the same time, technology has a very high potential for improving profitability with a potential reduction in distribution costs and an improvement in process efficiency.
It’s a race against time, insurers have to get this digital transformation done before startups gain scale. Let’s hope it’s not another sector where big companies die a slow death. The later it gets, the bigger and more difficult the road will be. And if you can’t beat them, as has been proven in other sectors, join them.
