Insurance is an industry that has long operated without significant disruption. Then InsurTech quickly emerged to shake things up.
Savvy consumers are looking for fast, easy, secure insurance solutions, and these startups have developed innovative, advanced technologies. After little change for decades, established insurers, agents and brokers who have become complacent now need to figure out how they will adapt to digital disruption.
Many insurers see InsurTech as a threat. In fact, more than eight of 10 financial services companies fear losing some of their business to InsurTech companies, according to the PwC Global FinTech Report 2017. Additionally, more than half of insurers see their industry as the second most-likely sector for disruption, following consumer banking.
Yet, companies such as Grinnell Mutual, a 100-year-old property and casualty insurance and reinsurance company, also realize there is an advantage in leveraging — and investing in — InsurTech. To that end, Grinnell has been instrumental in developing an insurance accelerator, which is a group of insurance companies and executives that help startups navigate the insurance industry.
Investment in InsurTech is big business. According to CB Insights data, global deals in insurance tech startups reached nearly $1.7 billion in 2016, with U.S. companies receiving 59% of funding. Investors are looking at companies specializing in individual components of the insurance value chain such as distribution, underwriting, claims and customer service, according to the 2016
KPMG Pulse of Fintech Report.
If InsurTech is such a threat to established insurance companies, why are companies like Grinnell Mutual so interested in funding new startups? While it’s true that new players in the insurance space could steal market share from incumbents, startups aren’t going anywhere, and their benefits shouldn’t be ignored by established insurance companies, agents and brokers.
Here are five of the advantages my colleagues at Grinnell Mutual see to investing in InsurTech startups:
No. 5: Learn new ideas and thinking from players who aren’t as close to the insurance industry.
While startups who participate in programs like accelerators will receive mentoring and guidance from incumbents, established insurance companies also benefit by tapping into the talent and mindset of up-and-comers. Since startups don’t have to follow an already established business model and process, they are able to reimagine and get creative about insurance products and delivery methods that customers are looking for in today’s digital world.
Established insurers, agents and brokers might not have the capability to get this creative themselves, but they can incorporate a startup’s new thinking or solution into their existing business models.
No. 4: Remain competitive by being at the forefront of technology innovation.
Insurance companies are already investing and partnering with startups. So to remain competitive and gain an edge, insurers, agents and brokers should be looking into how they will adapt to the introduction of new technology solutions. Startups are looking at ways to improve and extract profits from almost every link in the insurance value chain, including distribution, underwriting, claims and customer service.
New solutions will improve the customer experience, minimize fraud and maximize transparency — and simplify processes for customers, agents and brokers. Insurers who haven’t changed a thing in years should be paying close attention to how these new solutions could help them keep up with both traditional and new competitors.
No. 3: Develop and combine existing and new insurance products by partnering with up-and-coming insurance startups.
By developing relationships with their new counterparts, traditional insurers will have the opportunity to learn about and adopt new technologies that will help them respond to the evolving product and service demands of their agents, brokers and customers. There are some startups that become licensed insurers themselves, like Lemonade, but this is rare.
The majority of startups are developing backend technology solutions or are looking to partner with traditional insurers to bear the risk. These are the new players that incumbents will want to identify and partner with to enhance and create new insurance products and solutions.
For agents and brokers, new digital platforms and planning tools are increasing their efficiency while helping them better connect with customers. New online and app-driven solutions are making it faster and more secure for customers to sign up and process insurance claims.
No. 2: Help develop an ecosystem to support insurers.
With today’s customer looking for digital solutions beyond what many traditional insurers offer, it is important for established companies to work with startups to develop an ecosystem that will support everyone. Partnerships will help improve operational efficiencies and cost-effectiveness around creating more customer-centric product offerings for the industry as a whole.
No. 1: Invest in the future of the insurance industry.
As an industry traditionally known to have slow tech adoption, it was ripe for change. Breakthrough technologies developed by startups are already transforming the insurance space. Not only does this give traditional insurers a chance to reinvent themselves, but those who embrace InsurTech now will be investing in the future of the insurance industry.
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