Monday, July 18, 2016 4:05 PM / PwC
Many believe insurance is on the brink of a major disruption, but few are putting InsurTech at the heart of their strategy.
Insurance companies are very much aware of the FinTech revolution: 74% of respondents see FinTech innovations as a challenge for their industry. There is good reason to believe that insurance is indeed heading down the path of disruptive innovation, whether it is the effect of an external factor, such as the rise of the sharing economy, or the ability to improve operations using artificial intelligence (AI).
However, despite these emerging trends, a disconnect exists between the amount of disruption perceived and insurers’ willingness to invest to defend against and/or take advantage of the innovation: 43% of the industry players claim they have FinTech at the heart of their corporate strategies, but only 28% explore partnerships with FinTech companies and even less than 14% actively participate in ventures and/or incubator programs (figure 1).
Incumbent insurers who are currently focused on catching up with their competitors around customer centricity and other current trends are missing the opportunity to become proactive. They need to create a clear and consistent message that will demonstrate their willingness to play in the new InsurTech space and act accordingly – only such an approach will position incumbents to be front-runners in the new insurance era.
Nine in ten insurance executives, the greatest percentage out of the financial sector, believe that at least part of their business is at risk to FinTech. However, they also see opportunities that the innovative solutions may bring.
Over a third of traditional operations might be lost due to FinTech popularisation; this pessimistic—or realistic, as some might claim–view is shared by one in three insurance executives (figure 2). In fact, less than one in ten believes that FinTech poses no risk to their business.
Perception of the level of innovation deriving from FinTech in the next five years is three times higher in the views of insurers than perceived by external, non-insurance observers (figure 3). For “outsiders” FinTech-caused innovation happens mostly in banking and other financial sectors. The impact of FinTech on insurance may be further underestimated by “outsiders” due to high barriers to enter the market and stringent regulations.
Notwithstanding, the threat of FinTech believed by “insiders” is well grounded, as it is gaining significant momentum in an industry that is mainly driven by data insights. Venture capitalists are looking very closely at start-ups dedicated to reinventing the way people buy insurance, how insurers manage risk, and bring solutions for new needs, like shared economies. Based on companies followed in our DeNovo platform1, annual investments in InsurTech start-ups have increased fivefold over the past three years, with cumulative funding reaching USD 3.4 billion since 2010.
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