When did ‘incumbent’ become a dirty word in insurance? In politics, it’s conventional wisdom that the incumbent has an advantage: They’re a known entity, with valued experience at the job at hand. This is one of the reasons why reelection rates among incumbents seeking reelection have been consistently over 80% for the past 50 years.
Yet not too long ago I sat on a panel with an InsureTech startup CEO, who posited – and I paraphrase: It is incredibly hard for 100-year-old companies, doing $100 billion in business, to change their structure and DNA of the company. Insurance companies are proud of their tech stacks which are now dragging them down. They are proud of their distribution models and their thousands of agents, but we are in the age of a direct to consumer that isn’t an asset.
To which I replied, “Challenge accepted”. We all love the underdog but smart money is on the incumbent. I know mine is!
There are very few cases (so far) where an insurtech startup has created an entity that encompasses the full supply chain from distribution, policy admin and claims all the way to being the paper – that is, writing the actual risk. (Lemonade is a rare example.)
And to those who both accomplish that Herculean and insanely expensive task, are able to execute their business plan and have a loss ratio that does not require red ink or brackets, great! Your founders will probably make a killing!
But there will probably be two to three companies that will execute on this strategy and hit a couple of billion in premium. Even if they get to 10% of the market, there’s still 90% that has to be served.
There are digital distribution companies, like CoverWallet, that are great at distribution and creating a customer centric insurance experience, but they still need access to a carrier’s paper, rating, policy admin and more to operate. Without access to a carrier’s paper or process there won’t be an actual product to sell. What good is the best claims software if you don’t have access to the claims API of a carrier?
So can the incumbents hold on to their market share, given the massive challenges insurtechs face? What do they need to do, and where do insurtechs fit in?
As incumbents, we have the ability to incubate and grow innovative concepts organically. The established distribution networks and customer segments that we’ve spent years building can participate and benefit from beta programs, without having too major an impact on our existing business. Our databases are terabytes squared. The historical analysis of five years of claims data, layered on top the best of the partners and more give us more accurate, predictive material actionable data insights and lets us quickly determine what’s going to work for the business.
Most insurtechs are looking to tap into ‘the carrier stack’. If you walk the exhibit hall aisles of any of the big shows, most of the insurgent companies there can be broken out into two axes:
Axis 1: “Use Case”
- Distribution (leads)
- Data and analytics process efficiency
- Black box underwriting
- Insurance operations
- Loss control
Axis 2: “Value Prop”
- Venture investment
- Proof of concept
- Vendor integrations/Insurance as a Service
- M&A opportunity
So as an incumbent, rather than resisting the changes in the insurance marketplace, we’re tapping into the exploding global insurtech community and partnering with the best of the bunch. We have identified specific strategic opportunities and operational needs and we’re talking to new technology providers at every insurtech show we attend about how we can work together. We continue to iterate and improve our process on how to quickly document needs, integrate with an company, and launch a proof of concept. Succeed and iterate or fail and move on.
(This is my first article for Digital Insurance. If you read this and enjoyed it, please like it and tag #insuretech!)
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