(Beyond) Insurance – Back to the future

The past decade many insurers embarked on digital transformation journeys driven by the need to make their operations more efficient, search new areas of growth and fend off (new) competitors large and small.

Innovation became part of their daily vocabulary and the sector witnessed a Cambrian explosion of initiatives (labs, accelerators, incubators, CVC’s, …)  more or less following a similar outburst of start-ups focusing on insurance (‘insurtechs’).

But it wasn’t always clear what exact problem this flurry of innovations was supposed to solve.

Many initiatives focused on shiny new (technology) things overlooking what really mattered for consumers. Some cases were FOMO driven, others launched to counter the perceived ‘disruptive’ threat of insurtechs and others just genuinely good initiatives from incumbents upholding a tradition of innovation.

Insurance however was and still is something people rather not think about or pay for.  It remains in many cases an opaque product which most people rarely or never use.  Paying for the policy is often the only ‘engagement’ they have with the insurer.

Which is one of the reasons insurers looked at extending or adding products and services in what is called ‘beyond insurance’, admittedly a very broad term which can cover very simple things such as getting a replacement vehicle when your car is being repaired to entirely new service propositions to entirely new customers (offering memberships of fitness centers as part of prevention programs for example).

Today, with a tightening financial and socio-economic environment there is a renewed attention to old school metrics such as underwriting results, profitability and capital efficiency and many incumbents are reviewing their innovation portfolios and strategic positioning.

Growing beyond the core (aka ‘beyond’ insurance) still remains a valid strategic approach in this environment but will probably be more focused on services or products adjacent to the core.  Insurers are either adding ‘features’ to their existing products/services or they offer new ‘less traditional’ products/services to their existing customers.   In both cases they stay closer to what they are good at or what a customer perceives as a logical thing to do for an insurer.

Examples include services such as repair in kind, leak detection/prevention, burglary services, car related services, …  None of these are rocket science but all are very practical approaches aimed at providing convenience for the customer whilst also allowing some efficiency gains for the incumbent.

The implementation of these services can be either buy, build, partner or a combination.  The success here lies in the execution, not the idea as many of the above examples have been adapted by many insurers.

Whilst this is not really new, some of the earlier examples have been in the market for years, more players are developing likewise propositions and with the broader adoption of specific technology the variety in these kind of propositions is increasing. In an progressively uncertain world, it’s a safe(r) bet.    Insurers that haven’t done it so far should now be taking a very good look at how they can use technology to improve on their core products/processes/services.

Talking about technology, there is another notable evolution.  With technology becoming ever more complex and capital intensive (think of the amounts invested in self-driving cars or generative AI like Chat GPT or IoT,…) big players undoubtedly have an advantage over smaller players in developing these technologies.

The flipside of the coin is that these smaller nimbler start/scale-ups tend to be better a imagining and providing creative approaches on how to use that technology to solve real world problems.  Just look at the number of use cases you got for Chat GPT-4 on LinkedIN by a whole bunch of players.

So there is a great opportunity here for insurers and start/scale-ups to work together.  The insurtech sector has been growing for years and these companies are increasingly focusing on those cases that add more immediate value (read ‘have a bottom-line impact’) to their (insurer) customers.

One of the side-effects for insurtechs is as they converge on selling similar solutions to incumbents, increased M&A activity is very likely.  Just look at what’s been happening in the telematics space over the past years.   And incumbents have also been seizing the moment to get involved and acquire some of them.

A challenge that remains for incumbents and insurtechs alike is how to play well together.   Insurtechs often provide just a singular value proposition or point solution but insurers need it to integrate with their own applications and possibly other insurtech solutions.  This isn’t easy to do and competing priorities often imply that successful pilot projects never make it to production or that insurtech solutions are not evaluated on their own merits but on how incumbents implemented them.