Albeit a very short article and specific point of view, no doubt the view that the growth of InsurTech means less claims, greater cost competition and a smaller market, is one shared by many in the insurance market.
This concept in many ways is true, but highlights the need for the concept of InsurTech to be about driving market transformation and to create the insurance market of tomorrow, rather than simply looking at it for optimising the business of today.
I happen to agree with Kenny Leitch's hypothesis that with increased use of IoT, AI and analytics risks can be prevented, claims avoided and premiums pushed down due to the high-levels of competition in the market. The net result being a market that is worth less... ONLY IF the products and services provided by the insurance market remain the same as before.
As per one of my previous posts, the key word in digital transformation is transformation. What Kenny is highlighting is one of the biggest challenges that the Insurance market faces - the industry is not always looking at how insurance products and services need to adapt in the digital age.
If we think of the insurance industry more as an industry for managing and servicing personal and corporate risk then the rise of InsurTech is not shrinking that market. In fact now that we can better manage our risk, understand our personal risks and proactively prevent those risks occurring, one might even argue that there is a larger market for risk management products and services than before as we can now monitor and manage risks that before the introduction of technology we were not able to.
The issue is that the market for traditional products - where someone transfers their risk onto another party who indemnifies them if that risk materialises - is shrinking. This issue is compounded by traditional insurance organisations being a little late to the party on investing in the other areas of the risk management and servicing market place, and often having large businesses built around providing traditional insurance products and services.
As mentioned before, I agree with Kenny's point in the context of today's traditional risk transfer insurance products; however, I think that there is a massive opportunity for insurance companies to add value in the new digital risk management landscape. They should be investing in developing products and services that compliment their existing products and leverage their experience in specific insurance lines - helping prevent risks occurring and providing sufficient cover for the infrequent times that those risks materialise. A true end-to-end service that engages with the end consumer (the insured) throughout the insurance life-cycle and becoming a trusted advisor and service provider rather than a transaction valued by cost of premium and claims experience should it occur.
Services to prevent risks can still be commercialised, and rightly so. When offered alongside a refreshed portfolio of traditional insurance products these services could become the true value driver for the insured giving the insurer a platform to differentiate against competition beyond simply premiums and claims management. Furthermore, the increased scale and performance of digital channels and infrastructure (like mobile and cloud computing) provides the potential to shift further towards more customer-centric and service-centric insurance offerings including greater product customisation available to the insured, shorter-term or real-time cover, proactive risk management, and near instant procurement options.
InsurTech is providing insurers with a platform to create new markets built upon their experience and reputation in managing and servicing risks. That said, if they are slow to take up this opportunity the barriers to entering the services and risk prevention side of the market are ever decreasing and there is a queue of tech-first companies wanting to come in.
InsurTech will stop claims from happening. InsurTech is set to shrink the insurance market, according to Kenny Leitch, global connected insurance director at RSA. “There is an opportunity to use data and technology to create fewer collisions, fewer injuries and fewer claims,” Leitch explained. He added that by doing this insurers and brokers could lower their prices “in a very competitive market”.