Weekly Wrapup: The insurtech boom enters a new phase

The Weekly Wrapup is an analysis of the week's insurance tech news from the editors of Digital Insurance.

Insurtech’s rapid emergence and ascendancy, to use a Star Wars analogy, has been seen as “a new hope” for the industry. But now – to continue the metaphor – the empire is striking back.

The “empire,” in this case, are incumbent insurers who are taking an ever-more active role in trying to shape the insurtech sector. More than four in five insurtech funding deals in the fourth quarter of 2017 were done by established insurers, according to Willis Towers Watson.

Krisztian Bocsi/Bloomberg

But incumbents tend to have more specific needs from their partners. They tend to invest in companies that increase efficiency in some component of the traditional insurance value chain – not insurgents looking to disrupt. “Incumbents sent a clear message to potential disruptive outsiders: by investing heavily in start-ups and technology, (re)insurance companies appear to have assumed a semblance of control over the insurtech revolution,” writes Willis Towers Watson Securities’ global CEO, Rafal Walkiewicz.

In a new report from IBM, “Insurtech: Friend or Foe?” this dynamic is illustrated further. Most insurtechs see themselves as cooperative with insurers, with their solutions geared toward evolutionary development, rather than wholesale disruption.

“Insurtechs and the venture capitalists who fund them are looking to accelerate a shift of the industry away from traditional insurance products toward personal risk management, microproducts and insurance-as-a-service,” the report says. “While C-suite executives of outperforming traditional insurance companies understand the opportunity, they are reluctant to translate this into strategy.”

It’s understandable that established companies – especially those in the risk-management industry – would be reticent to jump wholesale into disruptive business models that are radically different than what’s come before. But that isn’t going to stop new entrants from coming into the market and explicitly targeting insurers’ legacy processes.

This week, auto insurtech Clearcover launched in California, targeting that state’s 26 million drivers with an experience it claims uses “smart technology like artificial intelligence to provide clear, actionable options so you’re empowered to make the right coverage choices.” Specifically, its SmartCover AI-based coverage recommendation tool uses “millions of insurance data points to create an algorithm that helps you select your coverages and limits, making finding the right insurance through Clearcover quick and easy.”

Clearcover pulled no punches in announcing its launch, saying that insurers “waste money” on outdated technology, celebrity endorsements, commercials and junk mail. The tactic isn’t new – Lemonade and other new entrants have gone to lengths to point out flaws in the existing insurance system. Incumbents, however, seem to be ignoring those criticisms, concentrating on bolting on new efficiencies to the current value chain.

That doesn’t mean that there aren’t interesting and innovative things being done by established companies, but obviously they are incentivized to keep the status quo afloat as long as possible. But it's unlikely that insurance stalwarts will be able to stop the industry's path toward disruption. The question is how far away the breaking point is – either from an upstart becoming a phenomenon (like Uber) or from an incumbent embracing totally a new business model.