WHERE ARE THE INSURTECH UNICORNS?

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Christopher Chan
Business Consultant

When it comes to digital innovation, the retail insurance sector has been progressing at a tortoise pace, in comparison to its sibling retail financial sector. Although there has been some push in the past decade, much of it has been unsuccessful with many blaming the fact that the insurance industry is just too heavily regulated, barring its digital growth. However, the same used to be said in the banking sector. Today we have several digital challenger banks who have succeeded in capturing market share (around 14% of UK current accounts), disrupting long-established consumer habits, and even reaching unicorn status in financial evaluation, with the likes of Monzo and Revolut leading the way.

We haven’t seen similar success stories in the insurance space, and the reality is that both new and old players are at fault here. On one hand, new InsurTech players  have not been able to offer enough value-add to attract consumers. On the other hand, big insurance players have consequently had no competitive pressure to take on any risky disruptive digital initiatives due to the lack of threat. In this article we wanted to take a deeper dive into why that needs to change and what is required to kickstart the evolution.

The Neo-Banks Are Coming

A considerable threat is approaching the insurance industry, and it’s from the UK challenger banks who have already shaken up the UK retail banking space. The challenger banks have shown that consumers are hungry and ready for digital disruption, with a study showing that 61% of people were looking to open a new account in the next 3 years. There is no reason why we wouldn’t see a similar volume of people looking to find new insurance providers that better suit their needs. In the few years that challenger banks have been operating, they have proven to the market that they can take on the big players and that they are here to stay.

While taking over the banking sector and recently reaching a £5.5bn evaluation, challenger bank Revolut has recently and quietly entered the travel insurance space with a usage-based insurance (UBI) model. Instead of the traditional model for buying travel insurance before a trip, Revolut instead offers pay-as-you-go travel insurance, allowing the consumer to purchase cover automatically each day they are abroad. Using geolocation technology and the consumer’s account profile, Revolut can offer instant travel insurance on-the-spot and this flexibility allows the consumer to buy the product when they need it. It’s digital solutions like these that will win the business of a younger and more tech-savvy generation, and it’s telling that, so far, the retail banking sector has taken the lead on these initiatives. With the advent of Open Banking which has increased access to a customer’s whole financial profile, we could well see more products being delivered by the banking sector, a worrying sign for the insurance industry.

Consumers are impatient for fresh, innovative insurance offerings that can accommodate their modern lifestyle. They are more than ready to migrate their insurance needs towards providers who can deliver these, whether or not they are seen as traditional insurance providers. Insurance companies have become complacent with their business models, and this digital age may just be the end of their golden years if they do not innovate, especially with others in the financial sector looking to enter the industry.

Moving into a Digital World

However, that is not to say that the insurance sector has not made any digital progress at all. The InsureTech market has been developing rapidly in the UK over the past few years, with over $1bn invested in 2018 alone. This digital innovation has not only expanded distribution channels for insurance companies but it has also allowed for new value propositions to be brought to market. Going digital means that companies can now offer propositions that millennials (and subsequent generations) actually want: more transparency, better engagement, and more flexibility in the products and services they buy. We have started to see interesting start-ups popping up to account for everything from the gig economy, such as Zego, through to community bicycle insurance through Laka. These companies, and others similar, have had promising starts but still have a way to go to cement themselves as major, sustainable players in the insurance industry.

We have seen a huge rise in mobile application usage, especially in the banking sector in the last decade. This is  to the point where several UK challenger banks were founded with a user-centric focus, where the customer experience is entirely digital through a mobile app. Brolly was one of the first UK personal insurance mobile apps that entered the UK industry, launched in 2016.  This personal insurance app scans your emails and brings together all your different insurance policies into one place. This helped people to see how much they were paying, how much their prices were changing, and most of all, allowed them to stay engaged with their providers. In this case, Brolly has excelled in leveraging the wealth of customer data available to them to offer a sleek and streamlined product for the market, and this provides a good blueprint for new success in the industry. Combining the volume of customer data that is now available with a suite of data analytics to provide analysis and clarity to the consumer, or combining it with AI functionality that takes efficient and transparent actions on behalf of the customer’s insurance portfolio is the next step on this path.

Ultimately, consumers are looking for an insurance partner who can be a trusted provider for the long-term. Consumers don’t want to be monitoring their premiums increase, hidden fees or sly changes in their coverage. They want to “set it and forget it”. They want peace of mind. Isn’t that why insurance is bought in the first place? Insurance companies need to go back to their foundations and really understand  modern consumer needs and then deliver the digital solutions that can satisfy their demands. By targeting the right consumer needs, only then will digital innovation really offer the right value propositions for the insurance consumer in this digital age.

We support our clients to deliver a digital future, and have a large D&A presence in a number of UK insurers. Contact us today to set up a free initial discussion.