Almost half (48%) of insurers fear that up to one-fifth of their business could be lost to standalone fintech companies within the next five years.
According a new research by PwC, this fear has been driven by annual investments in insurtech start-ups that have increased fivefold over the past three years.
- Insurtech start-ups have increased fivefold in past three years
- Two-thirds of insurers have taken ‘concrete’ steps to address challenges
- Customers demand personalised products
In response, over two-thirds (68%) of insurance companies say they have taken concrete steps to address fintech challenges and opportunities.
Customers demand personalised insurance products at a time when companies are looking to cut costs, PwC said.
As a result, insurtech start-ups are accessing and analysing data in new ways and in record time, not hindered by legacy technology systems as their incumbent competitors are.
The research listed the top three threats and opportunities for insurers from insurtech:
- Pressure on margins (73%) and loss of market share (69%) are highlighted as the top threats fintech poses to the industry
- Cost reduction (81%) and differentiation (65%) are highlighted by insurers as the most significant potential gains from fintech
- Incumbent insurers see IT security as the biggest barrier to working alongside start-up companies. The start-ups themselves highlight “difference in management and culture” as the biggest challenge in the relationship.
PwC UK insurance leader Jonathan Howe said: “The differences between start-ups and incumbents should be embraced as both are vital to the future of the industry.
“If the long-term mindset and experience of insurance companies can successfully be partnered with the creativity and agility of start-up companies, the industry as a whole will make progress in solving problems and bringing truly innovative products to market.”
PwC global insurance leader Stephen O’Hearn added: “There is a risk of missing an opportunity to deliver customers a similar experience to one they already receive from retail and technology companies. One size simply does not fit all in insurance anymore and, by working alongside insurtech companies, companies can begin to reposition themselves at the cutting edge of customer interaction.”