The financial industry, like most segments of the market, has undergone a decade of digital transformation. The result is the creation of increasingly powerful financial firms operating in the financial sector, called ‘fintechs’. Their strategy is to use state-of-the-art technology from product development, sales, customer contact, and consumer relationships. The insurance industry has relied on automation and innovative digital solutions for a long time. While most of the products in an average polish bank can be serviced in a smartphone's mobile application, it is very likely that an insurer will ask the customer to visit its facility or worse, fax some parts of the documentation. The development of technology and social media requires the industry to change the paradigm and adapt to the needs of a new generation of consumers. Innovative technological start-ups in the insurance sector are called ‘insurtechs’. What exactly is this newly emerging segment, where $1.6 billion was invested in the United States in 2016 alone?
The game is heading towards a massive stake; according to a June 2016 Inteliace Research report, the size of the Polish insurance market (measured by the total value of collected premiums) amounted to more than € 13 billion, the highest value among Central European countries. In addition, it is estimated that the market will grow by 4% per year for another 2 years.
The polish insurance market is the most outdated branch of its native financial industry. Unlike banking, it is dominated by large corporations operating in outdated, inefficient accounting systems, whose sales are conducted in high-cost direct channels. It is no wonder that in the traditional model of the insurance market, only big corporations with deep pockets had a chance to succeed; in 2015, 50% of all Polish insurance assets rested on the accounts of three companies: PZU, AVIVY and METLIFE. Although insurtech companies in Poland are just starting to see the global dynamics of innovation, their market share is expected to increase drastically.
According to the consulting giant PwC's report, ‘How Insurance Companies Change the Industry Technologically’ (2016), "as many as 90% of insurers fear losing some of their market share to insurtechs. At the same time, almost half of the respondents (48%) claim that within the next 5 years they may lose up to 20% of their business to independent financial tech companies. The fact that 68% of insurers surveyed by PwC have acknowledged that they have already taken steps to implement and use new technologies in their companies is proof that they are treating insurtechs as a serious threat .” The risk of losing market share is not the only incentive to introduce innovative solutions; 81% of respondents see the possibility of reducing their own costs. PwC experts have highlighted that using technologies such as cloud computing or blockchain (a distributed registry, used by Bitcoin technology) will help reduce costs by up to 10 times. Additional savings can also bring down the number of middlemen in the sales process and automate some of the operations. The benefits of using these new innovations for insurance companies seem obvious. But how will the average John Smith benefit from the insurtech revolution?
Insurtech - Filling the market niche
As market research shows, the average John Smith has become a consumer aware of the benefits of using innovative technologies in recent years. According to a survey conducted by KPMG in 2015, with the choice of two of the same insurance offers, 61% of customers would opt for a variant that additionally offers full mobile application support. In cases where insurance companies present a similar offer in terms of price and scope of protection, the use of innovative solutions (eg mobile applications) may prove to be a key element in building a competitive advantage.
It seems that executives of insurance companies must adapt their strategy to the expectations of increasingly sophisticated and technologically savvy clients. The KPMG results show that, along with the growing number of smartphone owners, the number of mobile app users is increasing. The most commonly used are banking applications, navigation and map services, social applications and instant messaging. According to the KPMG report "at the beginning of 2016, 14 million Poles had accounts on social networking sites, of which, 10 million connected with them via their smartphone. This represents a 9% increase over the last year. The number of mobile application banking users between 2015 and 2016 has increased by 40%. "
Given the size of the market and the objective ‘backwardness’ of the insurance industry in terms of technologically sophisticated solutions, we can expect small, innovative start-ups that will fight for as much as 13 billion euros worth of cake. Taking into account the expectations of customers, pampered by the excellent quality of Internet banking services, one can expect a positive reaction from the market to insurtech innovations. Moreover, since service providers are finding savings in the new technologies and the ability to diversify their catalog of services, it seems that everyone interested in the insurtech revolution can only benefit.