InsurTech series: Is InsurTech something new?

Nico Berry: I’m joined by Chris Sandilands, a partner from Oxbow Partners. Oxbow Partners are a consultancy very active in the insurance space. We’ve teamed up with them to do a video series on InsurTech. 

Chris, you hear a lot of hype around InsurTech at the moment, is it just a buzz, or is there actual substance to this? Is it something new in the insurance industry, or is just a re-branding of what’s always happened?

Chris Sandilands: It’s an interesting question and I think the honest answer is that it’s too early to tell, despite all of the type. On the one hand, what we’re seeing is that there are a couple of distribution start-ups that are gaining good traction and doing pretty well. A UK example would be Bought By Many, the personal lines distribution business. In the US, there’s a lot of hype around Lemonade. Both of those two companies have gone off the mark, let’s say. Lemonade is probably the most transparent about its user numbers. They’ve got up to about 14,000 policies after their first eight months in business. If you think about that, 14,000 policies is far from nothing, it’s pretty impressive after a short amount of time but on the other hand it’s nothing compared to one of the large established players. So I think we can’t really say yet because you’re always going to get some users early on but you’re not necessarily going to be able to maintain that trajectory to become the next Direct Line or State Farm.

Nico Berry: That deals with the retail space. What about the commercial space?  Is there a difference between the way the two sectors are developing, in terms of InsurTech uptake?

Chris Sandilands: I think that’s definitely true because if you look at where most of the distribution InsurTechs are playing, in particular, it would be fair to say that almost all of them are on the personal line space and a couple of them are on the SME space.

Nico Berry: In the commercial sector there’s more emphasis on administration cost reduction, is there?

Chris Sandilands: Yes, that’s right. If you look at the insurance value chain and you look at where all of the start-ups are playing, I think you can basically categorise all start-ups into one of two categories. You’ve got those doing distribution, or product innovation  and you’ve got those who are trying to improve other parts of the value chain. You might see companies like Tractable, who are doing AI, or using AI to improve the claims process, or to improve the way claims are estimated, they are not particularly a customer-facing technology but something that’s being integrated into the proposition, and if you look at those businesses, there’s a whole load of them which are applicable to the corporate market, doing data and analytics. There’s one that we talked to the other day, for example, that uses drones to estimate losses in crop insurance. They do very specific things to try to help insurers get better at dealing with corporate insurance policies. 

Nico Berry: Another term one hears associated with FinTech is disruption and people frequently look at InsurTech and FinTech start-ups as disruptive. But on the other hand if you look at – you mentioned Lemonade earlier - the types of investors in Lemonade are established insurers and I think reinsurers, is there actual disruption?  Or is this just a case of established players finding new ways to market and really it’s the same capital backing and underwriting the same risks effectively?

Chris Sandilands: I think that’s a very valid observation because if you look at the proposition of a lot of InsurTechs that are doing what you would describe as proposition – or they would describe as proposition innovation, then really, it’s not actually that innovative when you start scratching the surface. Most of them are still selling traditional products to traditional customers and I think it’s particularly true that the ones who are doing things which are different to the norm are actually the ones who are finding it hardest to get the volumes at the moment. Something like Bought By Many, which I mentioned already, is really just selling a traditional insurance product, albeit with some personalisation features, to a very specific customer demographic but ultimately it’s still a standard insurance product.

Nico Berry: If you were the chief executive of one of the established big household insurance companies, would you be worried about disruption from the reinsurers who are going into the direct to market route through MGA structures?

Chris Sandilands: I’m not sure I would be worried about it but I would certainly be keeping an eye on it. I think the market is plenty big enough that there is room for everyone to play. I think it’s also true that if I was a primary insurance CEO making that point I could also be rebuffed by a reinsurance CEO by saying that actually a lot of the primary players have moved into reinsurance. In all of this, in the overall insurance value chain, there are lots of examples of people moving out of their traditional part of the value chain and I think there is still plenty of business for everyone to be getting on with for there not to be a turf war at this stage.