Insurance companies must change because their customers are changing, but new technologies alone can't do much: expertise in the field is still mandatory
"The so called Insurance of The Future? It is already a reality". Luigi Onorato, Partner and Insurance Sector Leader in Deloitte, underlines that traditional insurance companies aren't behind the evolution curve. Because they have been changing their processes and strategies for some years, adapting to how their own customers are evolving. And yes, new digital technologies can be the strength points of insurtech companies. But they're not enough. As the market already proved.
Everything starts, of course, with the customer. In Italy, says Deloitte, customers are getting more digital than before when they deal with insurance companies. As an example, the consultancy firm says that 44% of them want to use a mix of physical and digital interaction channels. But just a minority (less than 20%) wants digital interactions only.
Potential customers are also getting more valuable, because market competition is more intense. Many new players, coming from different sectors, have launched personalized and modular offerings to cover what people most want to protect: their home, car, health.
Insurance companies sensed these trends long ago, and therefore started to change their processes. First, diversifying their offer with new modular solutions and the so-called "beyond insurance" services. Then, activating omnichannel distribution models that give more power to the insurance agent, who actually becomes a consultant, and where propositions change based on the specific target: families, SMEs, enterprises.
Isn't it the base of insurtech boom? Yes, but things change depending on what you think insurtech is. "As a market dynamic - Onorato says - insurtech is much more important than most people think and it's not limited to startups... In 2021, insurance companies invested more than 150 million euros in their innovation and R&D projects, while investments in insurance startups moved just 12 million euros". So, insurtech is not "insurance startups doing new stuff with digital technologies" but a market in itself: incumbent and new companies investing in many different technologies.
Innovation needs new technologies, of course, but innovation in the insurance sector needs something different and more complex: a combination of technologies and expertise that can help new and old companies in dealing better with a market that is still - and will stay - quite peculiar. Insurance policies cover primary safety needs and are hard to customize, in a market where interactions with customers are sparse and often limited to specific contexts. And where what customers mostly want to buy (car insurance) is not what insurance companies now want to sell (more complex products).
"This is what makes things hard for insurtech companies, when they decide to become more complete operators", Onorato says: "Without a proper insurance expertise, tech innovations is not enough to build sustainable models. And the market value of some insurtech companies proved this, being slashed even by 95%, compared to their first valuations".
Can these risks be mitigated? Yes, says Deloitte: with partnerships and co-innovation. Where traditional companies bring their expertise and startups offer a quick access to new technologies that can be used to launch new products and services. This way, says Onorato, you can have "the pragmatism the insurance sector requires and the creativity new technologies offer".
This co-innovation path should be led by traditional companies, more than by startups. With different options. An incumbent can define a partnership with a specific startup, for a short term market opportunity, or create an accelerator, to intercept more startups with an high innovation potential. Acquisitions are always on the table, directly or via a venture capital fund.
Francesco Pignatelli began his love story with computers and technology at the age of 14, with his ZX81. This led to a career in software development and then in IT and tech journalism. He has spent more than 25 years covering a wide range of IT and tech topics - telecommunications, cyber security, software development, enterprise software, knowledge management - for many of the most important Italian business tech magazines. He is always looking for new digital stuff and still writes unreliable software.