Last week I was asked to be be part of the closing panel at the ever excellent TinTech conference in London. The subject matter was "Is This The End Insurance As We Know It?" which led inevitably to a debate about the role of Insurtech and its disruptive potential.
The conference took place on 14th and just a couple of days later Mike Fitzgerald published this excellent article in Insurance Networking which would have saved me a lot of time and effort! He, like me argues that we're not heading for a battle, but the emergence of a new partnership model in which InsurTech and incumbents work together to mutual benefit.
In an industry that involves only data and money, the confluence of Supercomputing, Artificial Intelligence, Algorithmic processing , IoT, Blockchain and so on are going to dramatically change both available data and ways it's analysed. The trouble is that these are technologies that the insurance industry knows little about and still less about the data science needed to properly embrace them.
On the other side of the fence, those innovators who set out to disrupt insurance by allying their great ideas with investors burgeoning interest in Insurtech, have found it very hard - much harder than most envisaged. You can't do smart things with data if no one will give you any data to play with. Self-learning algorithms don't learn very much if no one will give them anything to learn from!
So, there is an increasing realisation that co-operation between start-ups and incumbents is the way to go and every insurer worth their salt has either set up some kind of infrastructure to facilitate this, or is planning to do so.
All this talk of incumbents v disrupters misses the real point which I think is this. While the massive disruption that is coming to the insurance industry over the next ten years will be caused by technological advances, those who bring those technologies to our market are not the real threat.
The same data that insurers will use to improve their knowledge of customers and their risks, will also be available to those customers themselves. They can use it for their own risk management and mitigation purposes so they just won't need as much insurance or in the form it's currently offered.
That same data will also be available to brokers and aggregators. The continued threat of disintermediation means they both have to find other ways of adding value and one approach which already has traction with the big three brokers is portfolio underwriting in which risks are bundled and priced in blocks thereby accelerating the convergence of insurance and capital markets.
There's also a threat from those who own the data we will need. It's a new form of intermediation - we will rely on it, but need someone else to supply it.
These trends are to my mind much more threatening than a few super bright kids with a degree in AI sitting in a trendy office in Hoxton writing self learning algorithms.
If I've not already persuaded you to lay off the innovators, here's one last reason why the future of the industry is not truly threatened. Unlike your own customers and the big brokers, innovators can be acquired. This is the way that commerce and capitalism has always worked both in insurance and other industries. It's not as if there's a shortage of capital! Time to deploy some of it working with innovators and if those innovators slip through the net and prove to be an irritating disruptor, just buy them.
The inherent challenges faced by both “tribes” argue for a partnership, rather than a replacement, solution. Insurers can address their legacy technology, risk aversion, and decision challenges by working more closely with the new technology firms that actively seek risk and have a bias to action. Startups need risk and regulatory capital and expertise as well as a customer base to serve. Partnerships between insurers and startups are a new business model. Unlike supplier-buyer relationships of the past, where a contract is negotiated through an extended procurement process, these partnerships must be governed by a common vision and controlled through active communication from both sides.