Is incumbents vs disruptors the wrong debate in insurance?

By Juan de Castro, CCO / COO, Cytora 

There has been much debate in recent years about the winners and losers in commercial insurance. More often than not, this debate is framed in the context of incumbents vs disruptors; how new market entrants are competing with traditional insurers by building a new kind of insurance company, offering a digital-first experience to customers, brokers and employees alike. 

But perhaps that is the wrong war to fight, as the main battle is happening between incumbents. And more often than not, the front-runners are partnering with disruptors to achieve a breakthrough performance that will allow them to win – both in terms of risk selection and operational efficiency. 

This was the topic of debate at the latest Tech London Advocates insurtech working group, where I spoke in a fireside chat alongside industry experts, including: 

  • Jay Wilson, Investment Manager, Albion VC
  • Alex Wheal, Commercial Client Manager, Hiscox 
  • Douglas Franklin, CEO, Digital Fineprint
  • Cameron Shearer, CEO, Superscript 

Here’s what we learnt about the changes happening in commercial insurance today, where to find the real potential for disruption, and how innovators are engaging with incumbents to change existing business models. 

Spaghetti infrastructure is holding back incumbents

Commercial insurance has been affected by the proliferation of technology, both positively and negatively. Albion VC’s Jay Wilson set the scene by outlining how innovation is scaling in the industry, with fewer but larger fundraises. 

And while technology is evolving, incumbents are struggling to unpick the “spaghetti of legacy infrastructure” that exists in their business today, which doesn’t lend itself to working with hyperscale, API-driven technology vendors.

One recent survey reported that 99% of insurers must undergo digital transformation to remain competitive, but 88% said legacy systems are preventing them from transforming quickly enough. 

According to Jay, these structural challenges will promote a battleground for early stage companies to scale. 

The need for speed

Many insurtechs see themselves as “innovating on behalf of the insurer”. Douglas Franklin from DFP told us that incumbents need to start taking calculated risks on new, innovative technologies, working in partnership with insurtechs to explore those options.

Fortunately, this is happening more and more. But it’s important that insurers don’t think they need to solve all of the industry’s challenges themselves. The challenges they have with priorities and resources make this very difficult, and partners are there to provide solutions to niche industry problems. 

That said, it’s frustrating to see incumbents moving so slowly in day-to-day implementation of technology. We know the spaghetti of legacy systems is proving tough to unpick. And we’ve seen some insurers take a month to make a minor change to their system, when in the same time period we’ve had four or five releases, with a dozen features in each. 

It’s vital that insurers find a way to accelerate their digital journey and keep up with the world around them – both the rate of innovation and changing customer needs – if they’re to stay competitive.

Implications of new distribution models

As part of the discussion, the panel explored new and emerging distribution models, such as embedded insurance. Hiscox’s Alex Wheal explained the company’s partnership with FreeAgent, the UK-based accounting software for small businesses. In this distribution strategy, insurance is embedded within other customer journeys in a way that is most consumer friendly. Ping An is probably the best example of how this distribution model has the potential to turbocharge an insurer’s growth. 

However, these new distribution models have broader implications for the industry. As distribution becomes less human-driven in some areas, insurers depend on having an efficient operating model to digitally analyse and process risks and offer competitive rates to third-party distribution. 

This ability to run efficient operations is what will differentiate the winners from the losers within the incumbent community. And we see fast moving incumbents partnering with disruptors to accelerate the pace of evolution.   

Risk goes digital

The insurers we partner with in the commercial mid-market are challenged with this digital processing of risk, when the risks you are dealing with are not homogenous at all. 

Each risk in commercial lines is different, and can vary wildly in its attractiveness. Insurers need to understand, is the risk within appetite? Is it attractive? And who is the best underwriter for the job? 

Answering these questions today takes time and manual intervention, which makes incumbents very inefficient. The whole process of evaluating risk is still a very time consuming, cumbersome process. 

We’re working with clients on how to evolve the digital processing of risk in a way that enables underwriters to focus on risks that feed the strategy, are attractive and that have all the information needed to be underwritten. 

Asking the right question

Perhaps then, with all of this considered, the question isn’t about winners and losers in insurance. Rather, we should be talking about the winners and losers within the incumbent ecosystem. As traditional insurers accelerate digital transformation and become more efficient, which will still exist in 10 years time? 

The answer to that question won’t be affected by competition with innovative new entrants. Rather, it will be because insurtechs have been enablers – riding sidecar with the insurer and providing the secret sauce for them to outperform their peers. 

A big thank you to Farooq Hanif, John McLaren-Stewart and Russ Shaw for organising the discussion, along with the panel of expert speakers. We’re looking forward to learning and sharing at the next event – watch this space for more information. 

In the meantime, visit our product page here to learn more about how we’re supporting commercial insurers digitise the risks flowing through their business.