The Weekly Wrapup is an analysis of the week's insurance tech news from the editors of Digital Insurance.
Conversations about disruption coming to the insurance industry, spurred by the insurtech wave, are not new in the sector, but news this week added a new existential wrinkle to those conversations.
When Amazon, Berkshire Hathaway, and J.P. Morgan Chase announced that the three titans would collaborate on a “healthcare company” for their employees, the biggest scare went to health insurers. Stock valuations dropped and payers were considered big losers from the announcement. That is likely because the language that the collaborating companies' CEOs used to describe the problems with healthcare were all around costs -- and insurers are responsible for handling that aspect of healthcare delivery. Berkshire Hathaway's CEO Warren Buffet -- who knows a little bit about insurance himself -- said that "the ballooning costs of healthcare act as a hungry tapeworm on the American economy." That's not a very pleasant image.
Much of the faith the pundit class in the venture comes because of Amazon's involvement and the early reference in the announcement to "technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost." There were some dissenters to the notion that any company can come up with technology that instantly repairs the system, but no matter what your faith is that these companies can deliver, the message is clear: People -- even people who run billion-dollar enterprises -- are fed up with the status quo when it comes to paying for health insurance.
This has echoes in other lines of business, though they tend to go less noticed because the voices are from new entrants instead of established and venerable firms. The home and renter's insurtech Lemonade, when it launched, called insurance a "broken system" that was suffering from a mutual lack of trust. Alex Timm, founder of the usage-based auto insurer Root, spent his whole career in insurance and became frustrated at its poor reputation among customers. All of these ventures -- from Amazon's, to Lemonade, to Root, all look to technology to repair the relationship between insurers and policyholders.
Insurers are clearly heeding these market warnings. Insurance business models have been largely secure for a century. Though the industry has been an adopter of technology along the way, much of that adoption focused on enabling those secure models. Insurers have been using high-level computing to price risk, manage policies and interact with agents for 30 years.
But the new digital world upends a lot of the long-held truths about insurance -- that agents would handle all customer inquiries, that carriers could afford to run batch processes overnight, that people would buy a policy and stick with it for years. Celent reports that after a few years of tiptoeing around major digital transformation, more carriers than ever are allocating more of their innovation budget to disruptive efforts, rather than incremental. In addition, four in 10 insurers say they expect innovation at their company to get easier in the next year.
Willis Towers Watson's quarterly insurtech briefing, which includes a survey of 600 insurers on innovation, finds largely the same proportions. About 40% of those respondents said their companies were risk-seeking when it comes to innovation; 28% said their innovation resources are "disruptive/radical" rather than "continuous/incremental."
This isn't going to be the last time that a tech giant assumes that insurance will never change unless it pulls the reigns. But insurers are more willing than ever to head them off at the pass and do the hard work themselves.
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