The following is an opinion piece written by Jonathan Stern, regional vice president ANZ, MuleSoft.
The rise of insurtech is shaking up the insurance industry, which has historically been known for its lacklustre pace of change due to factors such as strict regulatory environments and a reliance on legacy technology. The attitude has largely been: If it isn’t broken, why fix it?
Now, however, insurtech start-ups are paving new grounds with customers, offering more customisable offerings that cater to individual needs. These new players have a better understanding of customers, gleaned from the large volumes of data they are able to quickly collect, analyse and, most critically, act upon. They also can move faster and in more nimble ways, offering on-demand services unlike anything seen in the insurance industry before.
For example, insurtech start-up Amodo can vary motor premiums based on data collected from connected vehicles using smartphones and on-board telematic devices. The data profiles how, where and when an insured car was driven, taking into account speed, braking patterns, location, time of day, weather, road density and more.
There are also firms such as AppSichern and Slice that provide specialised, short-term insurance policies. AppSichern, for example, could appeal to someone who lives an active lifestyle, frequenting sporting events and injury-prone winter sports like skiing. Slice, on the other hand, could appeal to homeowners looking to rent their property for a few days or even hours with an on-demand policy that’s adjustable via a simple tap on a smartphone app.
With insurtech start-ups capable of moving at rapid speeds to create more personalised customer experiences, established insurance firms cannot afford to remain stagnant. While their approaches might not be “broken,” they certainly will not be the preference in short order. When creating policies and taking them to market, established insurance firms can no longer use a ‘one-size-fits-all’ approach.
Unbundling insurance
As we’ve seen happen in the banking industry, fast moving start-ups are beginning to unbundle established insurance companies. There are now over 1,400 insurtech start-ups disrupting everything from automotive, health and life insurance to consumer management, user acquisition and data intelligence.
Many of these insurtech start-ups are designed to be micro specialists. Rather than trying to cover every portion of the insurance value chain, they are mastering one specific area and, in many cases, linking with a range of other micro specialists to create a full product offering for the customer.
For example, one firm might focus on collecting behavioural data and offer this as a service to others who analyse it and on-sell the results. Alternatively, firms may opt to focus on one particular niche and then team with other firms to create targeted policies that meet customer demands.
The trend can be likened to the evolution of the Ford Motor Company in the early 1900s. In its early years, Ford wanted complete ownership over every element of its supply chain, even to the extent that it bought a Brazilian rubber plantation so it could produce its own rubber for its own tires. Over time, the company adapted to source these components from micro specialists that are experts at providing one thing well. Ford’s value then derived from the efficient way it could combine components together to create a car, rather than building the entire car from scratch.
Partnering with insurtech start-ups
In a rising micro specialist environment, established insurance providers need to alter the way they operate by playing into the sharing economy versus trying to own the entire value chain. Contrary to what one might think, they shouldn’t look to compete with insurtech start-ups but rather forge partnerships with them in order to improve customer experience. The key for established insurance firms is to build an environment where they can leverage and orchestrate valuable components provided by micro specialists—much like Ford and its component makers.
These partnerships could also be used to create new channels to market. For example, an insurtech start-up could create a frontend through which services from established insurance companies are sold. Rather than fear insurtech start-ups, established insurance firms should view them as potential partners and, in a sense, as jigsaw pieces that can fit together to provide the customised, cost-effective services that customers have come to expect.
Adopting an API strategy
For established insurance firms to foster beneficial partnerships with insurtech start-ups and subsequently grow revenue, they should treat and package their organisation as a discrete set of capabilities and processes that are exposed via APIs. With an API-led approach, every service, process and asset can become a managed API over time and, therefore, can be made discoverable and reusable by others.
As a result, internal and external parties can access and reuse components at scale. It creates the principle of insurance-as-a-platform, as firms have the ability to plug and play with partners where competitively advantageous. Instead of taking months, significant changes can be done within days or weeks because the processes are already there. Once this platform approach is adopted, organisations organically start to build application networks, one building block at a time. With every additional node added, the value of the whole network increases by far more than the incremental value of each new node.
MLC Life Insurance, for example, is investing heavily in APIs as part of its separation from former parent company NAB. As part of its business transformation, MLC is implementing a robust API strategy so that the insurance firm can plug systems in and out as needed, especially as the IT environment only grows more complex. And more complex it will certainly grow.
Significant changes are taking place in the insurance sector, and Australia is gearing up to sprint ahead. Just last month, Brenton Charnley, the former head of innovation at
MetLife, founded Insurtech Sydney, a standalone division of Fintech Australia. The organisation’s goal is to share ideas, network and improve collaboration within the innovative ecosystem in Australia to help tackle the challenges facing the insurance industry today.
With the insurtech industry ripe to grow fast, established insurance firms need to adapt - and fast - to stay competitive and relevant in today’s technology-driven world.
The preceding was an opinion piece written by Jonathan Stern, regional vice president ANZ, MuleSoft. The views expressed within the article are not necessarily reflective of Insurance Business.
Related stories:
Will technology really disintermediate brokers?
Inside Australia’s remote-first insurance firm
