Insurtech is where the smart money is going. Headlines shout about it and the figures prove it. Among the latest announcements two stand out: Munich Re has agreed to pump $45million into a phone app that provides on-demand insurance, while QBE is to invest $50million in partnerships with insurtech companies in four countries.
In a report issued at the beginning of April, research consultancy Celent provides the backdrop to the global spend on insurtech projects. The report, IT Spending in Insurance: A Global Perspective 2017, analyses regional IT spending as a percentage of premium from a sample of 50 insurers worldwide. Celent estimates that global IT spending will reach US$185billion by the end of 2017, with insurers committing most of their budgets to data, analytics and cloud.
Taking a longer view, the global insurtech market is predicted to grow at a compound annual rate of more than 10 per cent between 2016 and 2020. This is the view of the global technology research and advisory company Technavio in their report Global Insurtech Market 2016-2020. And, according to research from Garner in 2016, almost two-thirds of the world’s 25 largest insurance companies have already invested in insurtech, and by 2018 the majority of insurers will have done so.
Choose your partner carefully
All of the above reflects the rise of insurtech and the imperative for insurers to invest in technology to remain competitive and be relevant to today’s consumers, particularly millennials, who expect digital solutions.
For CIOs and other technology decision makers, the challenge is to choose a technology partner who will find the right focus for the IT budget, a partner with the experience and market knowledge to apply technology where it is most needed. Increasingly that means digital customer engagement, mobile insurance initiatives, and big data and advanced analytics.
However it’s not enough to have digital expertise and a passion for innovation – technology partners must understand the insurance market and the needs of insurers, which is why startups have a disadvantage compared to established insurance specialists who have the technical know-how and market knowledge.
The trouble with startups
In their rush to effect change or ‘disruption’, startups risk overlooking what the market needs. The ‘next best thing’ may not be the best thing for today. One example of mistiming was the development of apps when smartphone penetration was too low. But now that so many more people have smartphones, the time is right for mobile insurance.
Another challenge is to get the right team mix and strategy. Enthusiasm needs to be tempered with experience, innovation with industry requirements, and short-term wins with long-term growth. All of which give a distinct edge to the established players – innovators who understand the insurance industry and have grown up with the digital age and the needs of insurers.
Boom and bust
While insurtech is here to stay, not every new digital solution will be right for the market, and not all technology partners will provide reliable foundations for growth. For every successful startup, there will be others who go nowhere. The insurtech space is filling up with a long list of imaginatively named startups, all promising to do wonderful things, but how many will be around in a few years?
When you are considering your IT spend, and you need a technology partner with the right focus for your investment and the roots for sustained growth, think established rather than startup.