InsurTech disruptions will continue well into 2019. That’s an easy prediction to make as 2018 Q1 InsurTech investments increased 155% increase over 2017 Q1. This rise in capital indicates that there is no rest for incumbent organizations responding to startups delivering new capabilities and updated processes into the market. These firms can quickly evolve because they are untethered to legacy technology or an established customer base.
There are 2 basic ways in which the incumbent insurance industry is responding to the InsurTech disruption–the hard way, and the easy way:
- The Hard Way: Change and shift by investing in new infrastructure, new technologies, and new personnel, and hope it will result in a new way of thinking. It’s a risky and expensive bet, but if it succeeds the incumbent is on equal footing with the newcomers.
- The Easy Way: Don’t change a lot and invest money into the newcomers. If they succeed, you can cash out your investment or acquire them and reap the proceeds – assuming you can integrate them as a business unit.
To be fair, calling these paths the easy way and the hard way implies a value judgment that doesn’t really exist. Each method has its own advantages and drawbacks. The problem is that insurance companies seem to have overwhelmingly chosen the easy way – which would be fine, except the easy way might not even work leaving the incumbent insurance industry falling further behind.
Insurance Incumbents Are Still at Risk of InsurTech Disruption
In Q1 2018, $724 million of InsurTech funding was made available via 66 funding transactions in the emerging industry. Overwhelmingly, these investments have gone towards companies that have reinforced the traditional insurance value chain, offering products that support everything from underwriting to analytics. These are extremely commonsense investments, although it’s not yet clear that these will have the net result of decreasing costs or improving customer responsiveness.
In the past, this investment pattern was targeting only the most conservative ideas in the emerging InsurTech field. Outside investors have been funding the more radical concepts – the ones that may be more likely to fail outright, but also more likely to shake traditional insurance off its foundations if they succeed. And these outside investors are taking more massive bets as evident in the seven transactions of over 30 million dollars of the 66 in 2018 Q1.
What Are the Most Innovative InsurTech Disruptors Doing?
The innovations that seem most likely to disrupt incumbent insurers are those that let customers aggregate, manage, and purchase insurance products with astonishing swiftness. Having a mobile application is table stakes in this scenario – the real goal is to cut through red tape.
A startup called Homelyfe is a good example of how disruptive InsurTech applications are going to look. The platform works on both browser and mobile to aggregate insurance offers into a single interface. There, the application uses stored customer information to prefill various questions that each broker might ask. This enables homeowners to acquire insurance in less than four minutes. On the backend, an intelligent commission monitor assigns percentages to each agent or broker every day, removing the need for a usually laborious monthly reconciliation.
Homelyfe and related applications combine automation and responsiveness to compete with incumbent insurance companies in areas where they traditionally fall down. Just for example, it’s difficult for incumbents to create links between legacy applications and mobile devices. For them it’s usually a process that involves modifying COBOL on an AS/400 backend or adding a layer of SOA. This can take months or even years to do correctly. In other words, even if you started working on a project like this today, Homelyfe would have up to a year to enjoy a solitary position in the marketplace.
This is just one example, of course, and Homelyfe is by no means guaranteed to disrupt the insurance market wholesale. All it takes is one successful startup to emerge, however – the “Uber” of InsurTech, if you will – and traditional incumbents will have no way to effectively respond in a short amount of time.
Letting Insurance Companies Keep Pace with InsurTech Disruption
If the easy way of keeping up with InsurTech isn’t working, what’s the solution? It might be the hard way. Some insurance companies have already been working for years to modernize their backend systems. Most haven’t. Around 60% of insurance companies say that their underlying technology is out of date. These companies are starting from zero, which means that more technologically adept organizations will have a substantial first-mover advantage.
Therefore, the solution isn’t to choose the easy way or the hard way of keeping up with InsurTech. Rather, it’s to make the hard way easy. Reduce development cycles from years to days. Add new services without modifying legacy code.
Here’s an example of how Open Legacy helped an insurance company that was having difficulty with browser-based insurance aggregators.
Initially, this company was unable to interface with these aggregators. After months of effort, the company was able to build an SOA interface, but this architecture provided quotes so slowly, that most aggregators discarded them.
OpenLegacy was able to help by quickly generating API based microservices from their existing AS/400 applications, without requiring modifications to the existing code. On the operational side, the connection pool allowed for fast (millisecond) delivery of quotes. The insurance company could then add connectors to hundreds of different aggregators in seconds instead of months.