If you can’t beat them…

Traditional insurers face the threat of digital disruption. But many have found ways to join the game.

By Pat Renzi, Principal, Life Technology Solutions, Milliman.

Now is an exciting time for the insurance industry—but a challenging one at the same time.

New technologies and business models are opening up new markets, as well as alternative ways to service existing markets. But in this climate, being an established insurer doesn’t exactly confer any privileges when it comes to exploiting technological advances and generating innovative new business models.

So with nimble and inventive InsurTech start-ups threatening to disrupt the industry, how can insurers respond?

One way to get a piece of the action is by buying into the disruptors themselves. Investment in InsurTech start-ups reached a dizzying $2.65 billion in 2015, according to research by CB Insights.

New York-based InsurTech start-up Lemonade raised some $13 million in venture capital in 2015 for its peer-to-peer home insurance operation, and another $34 million in B round funding in 2016 as it plans expansion to the West Coast. Lemonade allows customers to direct the surplus from the premium pool to their favorite charities as a way of reducing fraudulent claims.

Using venture capital to get on the bandwagon has the advantage of achieving broad reach into the InsurTech space, and allowing insurers to bet on several horses. Companies like Travelers, Munich Re, and Aviva are taking this approach. They are partnering with Silicon Valley-based digital start-up accelerator Plug and Play, which hopes to attract up to 1,000 applications from potential insurance industry disruptors.

However, going the investment route is an arm’s-length approach, with limits on what the insurer can put into, and get out of, the relationship.

Another way in is for an insurer to launch a stand-alone start-up, either solo or as a joint venture with other carriers.

Blue Marble is the initiative of a consortium of eight global players, including AIG, Old Mutual, and Zurich Insurance Group, which aims to bring microinsurance to underserved communities. The companies contribute resources and expertise, and, although Blue Marble has a social mission, it is a for-profit business, intended to open up new markets through collaboration and new technology.

Alternatively, a traditional insurance company can create an in-house InsurTech initiative. Hedging its bets, Aviva has also done this recently, with their Digital Garage. With one site at London’s Silicon Roundabout and another in Singapore, Digital Garage brings together insurance, marketing, and information technology (IT) specialists to work on new ventures in a start-up environment. This not only keeps innovations in-house, it can potentially influence the culture of the parent company too.

It’s not just new tools that insurers need in the face of InsurTech disruption. A change of mindset is also required. An in-house initiative sends a message to staff, customers, and the market that the company is part of the “new wave.”

Insurers realize that they face the potential emergence of the industry’s equivalent to an Uber at any time. And they know that, in the digital era, personal data counts every bit as much as personal relationships. Younger customers expect to be able to do business with brands online, anytime, anywhere, and with ease. Insurers need to stay ahead of this curve.

There are many ways to join the InsurTech revolution—investment, partnerships, collaboration, and in-house initiatives. But there is no excuse not to, and no time to lose.


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