Whilst co-authoring two blogs with my colleague Stuart Riddell, The battle for the insurance value chain and Comprehensive protection – the insurers’ holy grail?, I noticed two key trends:

  1. At a market level, InsurTech firms were focusing their attention on the distribution part of the value chain, likely due to a low capital intensity and the greatest opportunity to add value to customers.

  2. At a business level, insurers most likely to create competitive advantage were those excelling in the very part of the chain that was under threat – customer experience (distribution).

Impact on the insurance industry

The trend noted above has certainly put the frighteners on many incumbents, with 73% of senior general insurance professionals expecting an ‘Uber Moment’, i.e. rapid and wholesale disruption to the existing market. Further, 36% believe this disruptive force will emanate from a new entrant, compared to 33% from an incumbent [1].

This is of particular concern when combining two factors:

  1. The majority of insurers are not currently excelling at customer experience (see Grant Thornton’s Customer Loyalty and Experience Index).

  2. InsurTech firms are targeting the customer experience part of the value chain.

The result is a number of start-ups creating innovative ways to improve the frequency and quality of customer experience. Particularly innovative examples can be found in the Health Insurance sector, where start-ups are creating bespoke customer engagement strategies and products for insurers via connected devices – establishing symbiotic relationships with incumbents.

Maximising benefit

There are clearly pros and cons involved when disruptors enter any market, the challenge for the insurance sector is obviously to maximise the upside and minimise the downside associated with those knocking at the gate.

One useful framework (of which there are many) for maximising the benefit from the proliferation of InsurTech firms is Professor Jay Barney’s theory on sustainable competitive advantage.

  • Competitive advantage – implementing a strategy that no one is currently applying.

  • Sustainable competitive advantage – implementing a strategy that no one is currently applying and where others cannot erode the advantage through duplication.

    To achieve sustained competitive advantage, a firm needs four resource/strategic characteristics:

  1. Valuable – they must improve the effectiveness of the organisation.

  2. Rareness – the firm must have almost exclusive possession of the resource.

  3. Inimitability – firms who do not possess the resources/strategies cannot acquire them.

  4. Substitutability – no equivalent strategies or resources exist. [2]

Clearly, InsurTech firms with resources/strategies that meet the above criteria provide many advantages to insurers, particularly as 81% of those surveyed said that legacy IT issues were a barrier to innovation [1]. However, insurers need to be wary of adding long-term cost into the insurance value chain, especially in lines of business where margins are thin.

The most pragmatic approach to InsurTech innovation is, therefore, to assess whether your own strategies/resources create sustainable competitive advantage, and where they do not, make use of those unique assets and strategies of InsurTech firms to maximise overall competitive advantage. The key to this approach is creating business models that are flexible enough to find, filter and integrate the most appropriate InsurTech innovations into the incumbent insurer.


[1] Marketforce – The Future of General Insurance 2016

[2] Jay Barney (1991) – Firm Resources and Sustained Competitive Advantage

Picture - Babis Panagiotidis