A 2017 report from consulting firm Oliver Wyman and insurtech investor Policen Direkt analyzes insurtech business models worldwide and pinpoints winners and losers.
The report titled, “InsurTech Caught on the Radar: Hype or The Next Frontier?“ is the first systematic in-depth analysis of the insurtech landscape globally, which does not only report the status quo, but provides a forward-looking perspective on the impact on the industry.
“Insurtech has become a hot topic for founders, investors and insurers,” said Dietmar Kottmann, Oliver Wyman partner and co-author of the report. “Insurtechs have already impacted the insurance industry globally and triggered a lot of change – often to the advantage of the consumer.”
However, the insurtech radar shows that the current startup activities are not yet exploiting all possible innovation opportunities.
“A lot of the insurtech investment today seems to be driven by conventional e-commerce thinking applied to insurance,” said Nikolai Dordrechter, Managing Director of insurtech investor Policen Direkt and co-author of the report. “Some areas are overcrowded already and will see a shake-out. But there are also some surprising white spaces offering great opportunities for entrepreneurs and investors.”
The insurtech radar identifies and examines startup business models across the industry value chain and determines likely winners in each category – either insurtechs, established (re)insurance players, pure tech players or attackers from adjacent areas.
Findings across the industry value chain (proposition, distribution and operations) include:
- Proposition: The proposition segment comprises companies developing insurance based products and services. It is the smallest and most troubled of the three segments because there is the largest mismatch between the level of insurtech activity and their chances of success. On the other hand, it also has attractive pockets with little activity today, presenting untapped investment opportunities. For example, companies that are positioned as risk partners are likely to attract interest from established insurers. Insurtech companies focused on new digital risks (cyber insurance or insurance for digitally enabled businesses) or companies promising to “deliver more than only insurance coverage” face strong competition from established insurers.
- Distribution: The idea of innovating the insurance sales process has attracted the highest number of startups around the globe. However, the distribution segment also suffers from an activity/attractiveness mismatch in some areas. B2C-Online (business to consumer) brokers face especially strong competition and have little opportunity for differentiation. It is evident that not all will survive. But there are also promising business model categories for startups. These include corporate platforms companies designed to sell insurance products through large HR functions and financial partners, insurtechs focused on personal finance offerings.
- Operations: The operations segment, which focuses on enabling and running insurance businesses, has the highest consistency between activity level and chances of success. There is a lot of insurtech activity in the Americas, followed by EMEA (Europe/Middle East/Africa). Operations is also the segment where insurtechs are most likely to dominate. Claims continue to be an attractive business model category for insurtechs combining a high market potential with high chances of success. Underwriting is attractive as well – but there is strong competition from traditional reinsurers here.
Dordrechter said, “Even if insurtechs win a specific category that does not necessarily mean that established insurers go out of business and become obsolete. Additionally, the majority of insurtechs focuses on collaboration with the established insurance industry. Few startups have positioned themselves as direct attackers.”
Kottmann concluded, “The first wave of insurtechs brought forward a lot of activity but little real disruption. There will be a second wave of insurtechs which are savvier, more creative and more ambitious, with the potential to truly change the way insurers cover risk. The question is how will the insurance industry respond?”
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