Depending on how you define insurtech / fintech, you’d be able to find thousands if not tens of thousands hopeful digital ‘disruptors’, all promising to make insurance personal, interesting, relevant, fun, cheaper, faster, on demand, as you use and much more. You’ll find the literature overflowing with terms as ‘disrupt or be disrupted’, discussing the future – if any – of incumbent insurers. It’s been like this since 2013 or even earlier

Taking a look at other industries that have been disrupted, it seems to me they’ve been so in a much faster pace than what the insurance industry is and has been experiencing. We’re still talking about telematics as a future disruptor, but as far as I remember, telematics has been around since the 90’s(?) and we’re yet to see a ‘disruption’. Europe and US are getting somewhere but still the majority of car insurance policy holders are having a conventional car insurance, albeit with an array of additional non-insurance services included to make it more attractive

I’d claim that the most disruptive force in (personal) insurance is the online aggregators that – to me – are online brokers, granting customers free access to quotes of ordinary car insurance products and maybe doing so in a freshly designed way. However, at the end of the day, it’s the same, just online and more convenient for the customers. Which is good, of course

But we’re yet to see the real ‘disruption’. Granted, Lemonade has begun offering home contents insurance backed by AI for underwriting and to assess claims and payouts, and others are on the move too, but given the number of startups and investments made in the industry, not much has been successful or at scale

Yes, I know how I come across to you when you read this: a grumpy incumbent insurance guy, stuck in IT and internal politics, incapable of moving fast forward in an agile, disruptive way. Well, I’m not. I’d be lying if I would claim that I’m not fascinated – sometimes even jealous – by the many interesting startups, their dynamics, agility, freedom to move quick without restrictions and actually get things done fast. I am

I’m also very interested in understanding the reasons why there are no more successes in the industry and how we can change this, being part of an incumbent insurer. To me, the reason we don’t see more successful insurtech startups is simple: it’s not easy!

It’s not easy at all

First off, the incumbents have something the insurtechs don’t have: customers and reputation. The aggregators are successful because they rely on the reputation and credibility of the insurers – if they were relying on their own capabilities to manage claims and comply with all regulatory requirements, I’d bet the situation would be different. Incumbents are still dominant because customers are risk-averse and tend to stay with what they have, especially with low-interest products like personal insurance. Even the most smart and cool insurtech faces hard times luring customers away, simply because the insurance products in essence are not really interesting to the customer

Second, incumbents have, admitted, old, outdated, cumbersome and slow backend systems to manage claims, recoveries, injuries, fatalities, complaints, disputes, suppliers, partner networks, etc., but this is a more complex task than I think most newcomers initially believe it is. I’m guilty of thinking the same when I first joined the industry, so I cannot and will not blame anyone

Third, incumbents have the licenses and necessary approvals to run a financial business, which is underlined by many of the insurtechs being ‘add-ons’ to existing licensed companies. In other words, incumbents have ‘been there, done that’, which is a process that takes years and may even face limitations in the total number of insurance licenses provided in a certain market

You can add more reasons, I’m sure. The really interesting question to me is how it is possible to merge the two worlds, so all will benefit; customers, insurtechs and incumbents

The change must come from within

I firmly believe that insurtechs can only(!) be successful once they find an angle to join forces with the incumbent insurers in the industry. By doing so it’s possible to get the best from both worlds; customers, processes and licenses from the incumbents and innovation (disruption) from the startups. This is so much easier written than done

Back to the second reason insurtechs are not more successful with incumbents: The legacy systems used by incumbents. And IT. The organization. Internal politics. Turf wars. Silos. Egos. All these issues must be overcome for insurtechs to successfully join an incumbent and actually being able to change the state of the personal insurance industry. Many incumbent insurers try to overcome this by creating their own, year-long, digital transformation projects aimed at changing what is to something new. They face indefinite resistance from the powers that be and when / if implemented, the world would’ve moved on and a new digital transformation project is required

Is all hope lost then? Of course not. The truth is, as always, somewhere in between, and some incumbents have already found ways of combining both worlds, so the industry is moving towards a new normal. Which is good and very much needed

Introducing Digital Solutions

At the QIC Group, we created the Digital Solutions unit and placed it in a DMZ (demilitarized zone) between IT and the business with a clear focus on developing future products with partners (insurtechs) and coordinating implementation with our existing Group IT department. Digital Solutions is enjoying the full top-level management support which is the main reason for the unit to be successful, as this means that Group IT is taking projects, requirements and partners very seriously

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It’s working. Obviously, the business will always think IT is not delivering fast enough, and IT will always claim that the business is asking for the impossible. This is, to me, a healthy sign of two competent units pushing each other in the search of excellence. And this is in my opinion the only mainstream way for insurtechs to become successful going forward. We should all work towards creating a DMZ digital unit, leveraging the fantastic innovations of the insurtechs and at the same time working closely with the existing IT departments to ensure adherence to compliance and regulations and provide access to the existing customer base

The downside is that this takes more time, so the top-management may realize that another solution is required to deliver the required results faster – choosing to detach the digital insurer, while keeping the connections to the customers and administrative processes. I wrote a white paper about this in September 2017 which you can find here

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