Premium potential of insurance and tech fusion - comment

Although insurers have not moved as quickly as other financial services providers in embracing fintech, there are lots of opportunities and it is a sector to watch.

Jones highlights new types of insurance such as on-demand products for Airbnb hosts. Picture: Michael GIllen.

Technology has already played a ­significant role in disrupting other areas of financial services – in banking and payments there has been an influx of fintech providers to the market.

However, unlike the insurance sector, this digital disruption has been underpinned by legislative reforms and regulatory intervention.

The absence of similar intervention in the insurance sector, coupled with challenges associated with legacy systems and strict regulation around the provision of insurance, means that there are major ­barriers to entry in the market. However, this does not mean that insurtech disruption is not feasible or indeed happening.

Increased collaboration between insurtech providers and insurers is key, says Jones. Picture: Devlin Photo.

Increased collaboration between insurtech providers and insurers is key in accelerating the use of new technologies in the insurance market and delivering efficiencies and improvements for insurers and customers alike.

For insurtech providers, partnerships with insurers can help them overcome major barriers to entry in the market, whereas for insurers, collaboration offers fast access to new solutions built on new technologies such as big data analytics and connected devices or innovative ways of buying and selling insurance.

As discussed at the latest Pinsent Masons fintech meet-up in Edinburgh, one of the main drivers of insurtech innovation is the disruptive force of customers in the ­market. Factors including developments in technology as well as pro-customer regulation have given increasing weight to customer demands in recent decades.

The so-called ‘Amazon model’ is prevalent in the insurance markets for consumers who want the option to access products and pricing quickly and easily. Price ­comparison websites have created, and, to an extent, responded to a demand for this in more straightforward sectors like motor and home insurance, where price is often the most important factor for ­purchasers.

Changing needs

Customers’ needs and expectations are also changing. Insurance was traditionally an annual purchase but now many customers want cover only when they need it and will expect it to be more bespoke.

Customers also want more than a cheque when things go wrong, including assistance in managing their risk and smartphone-friendly engagement. The insurance industry is adapting to these changes, but customers are increasingly sophisticated and less loyal. Insurers need to win and retain customers by offering products and services that meet their needs. Technology has a major part to play.

Great examples include on-demand insurance for Airbnb hosts who only pay for cover when their property is being rented out or “pay as you fly” drone insurance for commercial drone pilots.

Data access and sharing is a key part of the puzzle in enabling insurers and insurtechs to collaborate and securely integrate their products and services. The shift to a system of “open finance” is likely to spur opportunities for collaboration, using the data insurers hold. The Open Banking regime has shown the way in this respect.

As insurers and insurtechs explore solutions built on data and greater connectivity, they must be cognisant of the legal risks. Big data can enable insurers better understand price and manage risk. However, insurers need to be careful to avoid unintended consequences and ensure data is used in a way that benefits customers and is consistent with their legal and regulatory responsibilities.

Lauren Jones, senior associate at Pinsent Masons.