Insurtech has attracted billions of dollars in investment and anticipation, but there is a shortage of runaway success stories. The obvious question is: why?
Cheered, feared, hallowed, and hyped, it’s easy to get carried away with insurtech. But after the keynote evangelists have exited the stage – and for many investing insurance companies, millions in hard-won revenues have been spent – there can be a brooding sense of disappointment.
We simply haven’t seen many insurtech unicorns – startups that reach a value of over US$ 1 billion, as if you didn’t know – to rival the tech superstars touted in presentations. Investors spent some $1.3bn on insurtech funding in the third quarter of 2018, according to the latest figures from Willis Towers Watson, double the amount injected a year before. Such increases in insurtech spending have become the norm.
With investment rising exponentially, the results, so far, seem oddly muted. Why are the top insurer rankings unchanged? Where is the much-touted Uber or Ebay for insurance? Why isn’t Lemonade the size of Lloyd’s already? With all the industry backing and VC funding, why haven’t the insurtech disruptors wiped the underwriting floor with insurers stuck in the old ways?
Answers are typically nuanced, footnoted, or complicated. Insurance has high entry barriers. Investment can take time to bear fruit. Insurtech has opted to partner with existing players, providing specific components and services within the bigger machine, rather than turning up as its own thing and trying to replace conventional insurance all at once.
But if you are one of those incumbents, expecting your technology investment to deliver, there is a major risk of underperformance. This is in part because much of the new tech is being sunk so deeply into old and creaking infrastructure.
You can’t bring about a revolution while simultaneously clinging to the old ways. Too many insurers are spending on new technology while continuing to leverage legacy systems that lag behind, dooming them to over-spends, delays, over-reach, and mediocrity.
The scalability challenge
Let’s look at an opposite perspective. The insurtechs writing risk today boast niche products and fresh technology, but their scalability is severely limited by insurance’s entry barriers – such as licences from various local regulators – to roll-out of innovative products with sufficient scale.
But for existing large insurance players, they already have the scale, the capital, the market access, and the regulatory permissions, and they are spending big on tech. Yet despite all these advantages, their successes are all too often underwhelming.
Niche and scale can seem to be contradictory terms. Insurance providers like to say they are niche players, while every company wants to reach big markets. Too many try to be jacks of all trades, ending up masters of none. Their organisations have plenty of scale, as well as products, but they remain inefficient at distribution and delivery.
Focusing on a great new product (or a suite of related products), with the right technological engine to provide the power, can simplify matters, delivering both niche and scale. You want the reach, the distribution, and customer engagement – minus the inefficiency.
Drop the dead weight
This is the baggage you need to leave behind. Abandoning legacy technology is vital to achieving a breakaway success, if that is where valuable data or business processes are trapped. Get the fuel to the engine, shed whatever slows it down, and performance will improve.
Too much insurtech spending is simply being sunk without a trace, hamstrung or half-buried by the old systems and processes that surround it. It’s time to chuck these out, start with new technology, and build your winning solution around it.
The insurtech unicorns may be lacking, but there are established insurers out there with the potential to reach the heady heights that insurtechs have in their sights. The unicorns, shy by nature according to folklore, are indeed hiding in their own back offices.