Insurtech explodes, but how do you sort the good from bad?

You might think the noise around insurtech can’t get any louder. Think again. According to tech research firm Juniper US premiums generated by insurtech will more than double in the next five years to hit $400bn.

It’s a topic of discussion that’s only going to get bigger. Partnering up with the right insurtechs is therefore a key aim of insurance firms.

But with the market seemingly flooded with options, how do you separate the wheat from the chaff?

Insurer evaluation process

The insurtech marketplace is very diverse and “not at all equal,” says Jon Mansley head of digital at LV= General Insurance (LV=GI), therefore a solid evaluation process is needed.

He said: “I’m always looking at whether there is a good fit between us and their business, would they be a cultural challenger who could help reframe our approach to the problem and are they open to collaboration and know what they want from the insurer?

“I also ask myself if their idea has clear consumer and financial benefits, is it scalable with the ability to adapt and grow as needed, and finally, are the principles of the insurtech ‘investable’?”

Neil Mercier, head of motor at AXA UK says a partnership has to make sense for customers.

“For us, it is about making life easier for our customers. That can be through ease of use or by providing relevant services. If it doesn’t make their life easier, we aren’t interested,” he says.

For example, AXA’s car policy is available on the Brolly app which policyholders can use if they need help making a claim.

The insurer also partnered with By Miles recently to deliver a pay-as-you-drive policy.

Mercier added that AXA looks for insurtechs that have a “great idea, something that is outside of what we could do ourselves.”

“One of the strengths of start-ups, if they have good IT capabilities, is that they can adapt quickly and cost-free. That flexibility is something we value very much.”

Glen Clarke, head of transformational propositions at Allianz, named the following factors as key: product, people and regulation.

Firstly, he said it’s about “strength of propositions” and whether it presents real capability rather than incremental change and the extent to which it will positively benefit customers.

Secondly the insurtech needs to demonstrate that they have a “good understanding of the insurer’s business,” the market and its challenges.

It is this, that Clarke said would make them stand out and have a product that genuinely solves an issue.

But he added: “It really helps if they have an understanding of how to work with a larger business which is of course, entwined with their understanding of the market.”

The technology behind the proposition is also important, as well as how easy it is to integrate and having a strong awareness of the regulatory and data security requirements.

Keith Binley managing director of LexisNexis Risk Solutions for the UK and Ireland agreed that insurtechs do “improve customer experience”, as well as help solve core industry challenges.

He added: “At the core of their proposition are new data sources, and new ways of using data and analytics that truly benefit the consumer.

“It’s no exaggeration that data is and can be an insurance providers most valuable tool, and that providers should look to work with insurtechs who are really leveraging data to deliver more digitised customer centric services.”

Insurtech investing 

By partnering up with insurtechs, incumbent insurers hope they can be at the forefront of disruption rather than bear the brunt of its turbulence.

The odds appear stacked in favour of there being more disruption in personal lines.

One revealing statistic is that out of 550 insurtech deals examined by Accenture, only 24% related to commercial lines with the remaining three quarters dedicated to personal lines.

Tracey Smith, FinTech lead at Direct Line Group, agrees there has been significant investment in insurtech.

And we are now at an “interesting point in time” where we are looking for results.

“In the UK, we are still waiting to see this same disruption from insurtechs and the fact that over 75% of the start-ups are dependent on incumbents suggests that it may come from a different place,” she added.

If insurers are to benefit from the disruption, or truly gain from the added value an insurtech offers, they should be more keen to invest financially in them.

According to Accenture, just 17% of the insurers worldwide had an in-house venture capital fund targeting the digital or technology space.

For retail banks, this figure is twice as much.

“Insurers should draw inspiration from the enthusiastic example set by retail banks.

“They can also learn from the different models employed by banks when engaging with the FinTech scene,” Accenture says in its ’Rise in Insurtech’ report. 

From assessing the customer benefits to cultural fit, insurers are clearly getting better at evaluating insurtechs, even if there is still some way to go before they get the very best from their partnerships.