Let’s Talk About Insurance Before Amazon Disrupts It

January 5, 2018     By : Matteo Carbone

I love insurance, and I have dedicated my career to the innovation introduced by InsurTech. The year 2017 has been a year full of InsurTech discussions for me:

  • I took 187 flights to discuss InsurTech in 35 cities in 15 different countries, a unique opportunity to shape my ideas from different perspectives.
  • I give InsurTech keynotes and discussed on the stage at 40 conferences.
  • I did my first InsurTech investment.
  • My two insurance think tanks focused on insurance IoT aggregated more than 50 organizations (insurers, reinsurers, institutions, and tech players) between Europe and US with hundreds of executives involved in more than 100 workshops (almost 350 hours).
  • In the last months of 2017, I wrote – together with my friend Andrea Silvello – my first InsurTech book All the Insurance Players Will Be InsurTech” and it was published in the first days of 2018.

I put together in the book: all the foundations of my InsurTech thoughts; the elaboration of many discussions I had since I published my article “Will FinTech Newcomers Disrupt Health and Home Insurance?” on August 2015; some typos (in the last chapter, there is a “million” where a “billion” was needed but you will find some others); and a review of my five InsurTech predictions made during Christmas 2017.

5 InsurTech predictions for 2018 and beyond

Exit

Prediction: Not everyone will prosper. Although many amazing InsurTech companies are seeing great results and scaling up – and many will continue to enter the field – some will surely leave the game, as well.

Result: I was dreaming of an InsurTech unicorn’s exit. Well, dreams become reality sometimes: Zong An – the Chinese full stack InsurTech – made its IPO with a $10-billion valuation in fall 2017. Also, Travelers acquired Symply Business for $400 million. On the other hand, Guevara left the game in the second half of the year. This winnowing down, a Darwinian “survival of the fittest,” should ultimately strengthen our industry.

Reconversion

Prediction: This is the other side of the moon. I saw many initiatives doing a great job putting together a fantastic team and a sexy equity story; some raised relevant capital but their business models look (to me) not sustainable from an insurance perspective. I don’t want to claim that none of them could succeed – history has already shown how skepticism can be wrong. But I’m expecting to see some of those players use their great skills and the funding raised to change radically their business models.

Result: In spring 2017, Trov did a round of financing of more of $40 million with a valuation higher than $300 million, but from what we heard from the CEO at different conferences, the company is focusing its efforts on a back-end system that insurers can use on their customer base rather than on growing its customer base and portfolio of on-demand risks. Also, Zenefits went through a difficult 2017, stepped back from the brokerage business, and started to license its technology as a SaaS player.

Connected insurance

Prediction: My two cents are on any insurance solution that uses sensors for collecting data on the state of an insured risk and on telematics for remote transmission and management of data on the insurance value chain. A crazy prediction? Let’s consider the most mature use case: auto insurance telematics in Italy, which represents one of the best practices globally. I made a forecast that in Italy that there will be >7.5 million cars connected with an insurance provider by the end of 2017 (compared to 4.8 million cars connected at the end of 2015).

Result: In line with the expectations, Italy’s insurance telematics policies had reached 7 million by the end of the third quarter of 2017, according to the IoT Insurance Observatory.

Culture shift

Prediction: Incumbents are becoming more interested in debating innovation and concretely testing new approaches, including collaboration with startups. I expect to see this new breeze surround old-style insurance institutions, with a growing awareness of how all the players in the insurance arena will be InsurTech players.

Result: A board member at one of the largest global reinsurers recently summarized the essence of insurance as assessing, dealing, and accepting risks using the latest technologies. That’s one sign that the industry is coming around. We saw 3,800 more signs at InsurTech Connect, the world’s most prestigious InsurTech conference. In 2016, the conference had 1,200 participants; in October 2017, it sold out with more than 3,800 attendees. Me and Andrea Silvello were there on the stage and witnessed the incredible energy of those insurance professionals, regulators, and startups.

Sustainability

Prediction: Many value propositions are bundling risk covers and services, thus allowing the insurer to influence behaviors and prevent risk, contributing to the sustainability of the sector. In the next months, I expect to see some insurers becoming more relevant in the life of their clients and act as partners and not only as claim players.

Result: The speeches of top insurance executives show the sector’s ambition to go in this direction. A slide projected on a wall is just that, however: in the field, we see very few examples of implementation.

What will happen in coming years?

Unfortunately, I damaged my laptop a few days ago so the crystal ball for the 2018 predictions is also not working. But I want to provide my middle-term view about the buzzword most on hype at the end of 2017: Amazon activity in the insurance sector.

I predict Amazon will not disrupt the insurance sector. I believe they will do something – especially around insurance coverages on the products they sell – but they will not be able to touch the core of the insurance profit poll on commercial lines but also on personal lines (auto, property, life, health). My view is based on two main beliefs:

Underwriting discipline is one of the key elements of a successful insurance business

One of the key element to be a successful insurer is underwriting discipline, as was well highlighted by Mario Greco recently or some famous Warren Buffett sentences in the past.

I believe that underwriting discipline will conflict with the culture of any tech giant. They could buy an insurance company or hire talented people to close the gap of insurance knowledge, but their corporate culture doesn’t fit with the insurance business fundamentals.

With insurance, one size does not fit all

The second aspect is about the distribution activity: each market has its particular characteristics; one size fits all doesn’t work, which is the opposite of how social media or internet business works. I’m speaking about what the customers want (need) to buy in the different markets and how they want to buy it. I don’t want to discuss the distribution of life insurance – the usual push product which needs to be sold – where the digital channel at global levels represents less than 1% of the new sales. Instead, let’s take the example of the personal line auto insurance.

The UK auto insurance market is controlled by online distribution today: this market was dominated by face-to-face distribution in the middle of ’80s, and then in few years, there was a shift to the direct purchase by phone and some years after, those volumes migrated from the phone to online. I remember the discussions with insurance executives I advised 10 years ago: their assumption was that all the Western European markets would follow the UK evolution path in few years. After 10 years, the auto insurance distribution in Europe continues to be dominated by the old traditional channels. You can argue the fault was in the execution of the local carriers. Well, let’s consider the European branches of the UK carriers. UK insurance groups developed the experience and the technology in the UK to run this approach amazingly, but none of their European branches were able to replicate this success in other markets.

I don’t think things cannot be changed – there are a lot of opportunities to do things in a different way. But “one size fits all” doesn’t work, and I’m skeptical about the tech giants’ ability to deal with those local insurance characteristics. Let’s imagine a tech giant dealing with that from their office in Silicon Valley or the European hub in Dublin. I believe this weakness will emerge as soon as they will dirty their boots on the insurance distribution (or more steps of the value chain).

It is an interesting time to be in the insurance sector, and I’m pretty confident GAFA (Google, Amazon, Facebook, Apple), and BAT (Baidu, Alibaba, Tencent) will not disrupt this sector.

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Matteo Carbone
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Matteo Carbone

Principal at Bain & Company
Matteo works in Bain Financial Services and has spent most of his time advising many primary players in the Italian market. He is an expert on key issue and emerging trends in insurance and wealth management sector. He has wide experience with major international insurance groups.
Matteo Carbone
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