Hardly anyone would argue that change and innovation are not necessary in insurance. The $5 trillion global insurance industry is large, complex and capital intensive. With various relatively untapped market segments and under-penetrated world regions, the onset of PE/VC investments did herald the beginning of buoyant sentiment for more dramatic change and innovation than the industry was known for.

As recently as 2016, the term insurtech didn’t evince interest on internet searches. In the ensuing period, it has gained hype and momentum. Investment activity moved to witness manifold increase at the early startup stages and increased intensity for scale-ups.

Unsurprisingly, researchers have identified insurance, capital markets and banking as sectors most ripe for disruptive innovation. Below is an Accenture chart that compares current level to future susceptibility. 

If you look back at insurance history, innovation was coupled with conservatism that dissuaded companies from latest fads and helped maintain capital for intended purposes. Such conservatism benefited most carriers during crises, but dampened the flexibility needed to survive and thrive later. Over the last few decades, more money was spent in technologies to keep up with regulations than for modernization.

The advent of technology companies has resulted in frenzied activity among incumbents to build similar capabilities, to scale and dominate their markets. But, as Yale University Professor Robert Shiller in a seminal article titled “Radical Financial Innovation” said, “Radical innovation requires serious experimentation, serious effort to find the precise form of financial or insurance structure that will perform well, serious effort to educate the potential clients about the new risk management tool, a commitment by innovators to make it work, and an involvement with other institutions and thought leaders to make the variety of changes possible to make the innovation succeed.”

This is not easy for carriers encumbered by large, slow-moving legacy organizations nor for the tech challengers who have jumped headlong to move the needle. Serious experimentation and efforts will take serious time. Educating clients about risk management tools will consume significant energies. The below Swiss Re chart shows, truly revolutionary technologies and propositions are at best a few years away.


It is an opportune reminder that not all such endeavors will succeed. The winners far from being standalone innovators, will be those that work closely with other organizations and ecosystem players.

Insurance is a sticky industry, with an average retention of 84% in 2018, according to OECD. But, customers today are more likely to switch providers that offer lower costs or better service. In fact, 77% of auto insurance customers are likely to shift to another provider, according to a JD Power Study.

With a vast underserved population, the threat looms of disruptive innovation by an upstart creating a low-cost product that, like the first automobile to hit the market, is derided in the short run,  but has far reaching consequences with time.

As the initial frenzy marginally dissipated and carriers collaborated with startups, fewer industry executives feel concerned about the speed of tech change, changing consumer behavior, or new market entrants. The shift towards collaboration has got both startups and legacy providers to realize that they gain from combining the former’s tech with the latter’s customer knowledge, risk understanding and capital strength.



In effect, incumbents see less existential threat from a new entrant. Instead, the threat might emanate from incumbents partnering with tech innovators, tech pioneers scooping up carriers to go full stack or tech giants leveraging distinctive competencies in tandem with incumbent majors. There is turmoil on the road ahead and  those that are constantly scanning the emerging trends, leveraging these and strategizing to build on their current market positions, will be most likely to thrive.

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