19 January 2018

In today’s business environment, companies face an increasingly complex playing field, combined with higher and faster rates of change. A significant contributor to the changing landscape is the impact of the digital revolution. Breakthrough developments, such as digital technology, are threatening the current business ecosystem and transforming the insurance industry. Innovative new entrants, enabled through digital technology, are disintermediating the value chain and threatening to disrupt incumbent firms. To survive in this increasingly digitised world, one must understand which technologies have the greatest potential to disrupt the industry and the appetite of firms to utilise them. As the digital revolution is reshaping the environment, it is critical to be aware of what the challenges and opportunities present.

The Current Business Environment
The insurance industry is renowned for tradition; for centuries, insurance brokers have walked the City clutching bundles of papers in slipcases and placement deals completed face to face on the Lloyd’s trading floor. The industry’s traditional business model has maintained remarkable resilience in the digital age. However, it is now threatened as a result of the digital repercussions of InsurTech. InsurTech is a portmanteau of insurance and technology, with breakthrough technologies such as blockchain, Artificial Intelligence (AI) and drones. Although the impact of these new technologies are difficult to predict, a survey by PwC highlights that 74% of insurance companies believe that part of their business is at risk of disruption. Within the next five years, insurance is anticipated to be one of the most disrupted industries by FinTech, however, only 43% of firms claim to have implemented InsurTech into strategies. Furthermore, the majority of executives are failing to address the digital disruption because of the industry’s inherent nature to take a more traditional path.

Digital Disruptors: where are new entrants cutting in?
New InsurTech entrants, known as Digital Disruptors, are disintermediating the supply chain through a narrow focus on a portion of the value chain and leveraging specific new technologies to meet customer needs. Essentially, the agile Digital Disruptors are challenging the traditional roles of organisations in an increasingly complex business environment. Consequently, there is a greater need of expertise to provide solutions to the evolving services and products; disaggregating the value chain into supply chain networks. The involvement of many partners and the intricacy of managing the relationships will become a key success factor in the insurance industry. Standalone InsurTech firms will find it difficult to permeate the business landscape due to regulatory and capital barriers. As a result, the support from an established industry player, that brings regulatory fit and capital, is critical for the success of InsurTech. Ultimately, the co-dependent marriage between InsurTech entrants and the incumbent firms is beneficial for both parties and has the potential to be transformative of the industry.

Fostering Relationships with InsurTechs: where do the opportunities lie?
New technologies and processes are presenting major opportunities for insurers, but paradoxically pose a threat to those that do not exploit these developments. Despite the apparent impact of digital disruption, a disconnect exists between the level of perceived interference and willingness to defend against or take advantage of innovation through investment. Leveraging the new technologies undoubtedly requires agility from the original players. However, standing still amidst the digital revolution could negatively affect market share rather than exploiting the benefits from technological opportunities.

Opportunities exist for venture capitalists analysing start-ups that transform the purchasing of insurance, the management of risk and expectations, such as shared economies. Since 2010, cumulative funding within InsurTechs has reached $3.4 billion, which quantifies the opportunity for incumbent firms to leverage emerging technologies. The original industry players are able to better understand the potential benefits of technologies, such as drones and Artificial Intelligence. As aforementioned, exploiting the digital developments requires fostering symbiotic relationships between insurers and Insurtechs. However, therein lies a challenge; the management and culture for insurers and InsurTech firms is rather juxtaposed, making the formation of successful strategic alliances difficult. A study by PwC highlighted the unwillingness of insurance firms to either launch an InsurTech subsidiary or acquire a FinTech company. Insurance represented the lowest percentage of such strategy implementation in the financial industry. This demonstrates the industry’s lack of eagerness to adapt to new technologies. However, exploitation of this strategy by firms can aid competitive advantage in the changing business landscape.

Changing customer needs and expectations
Opportunities also exist in meeting the changing needs of customers. Expectations are changing due to technological and social trends, such as telematics for car insurance, smart homes for home insurance and wearables for life insurance, all of which provide valuable data on customers. As a result, underwriters must understand and adapt quickly to the emerging trends. Once adopted, firms are able to adapt offerings to personalise insurance solutions. The recent introduction of an artificial intelligence system at Lloyd’s is an exciting concept as it can co-exist with the existing technologies.

Modernisation of the London Market: Placing Platform Limited
A key component of the modernisation of the London Market is the PPL; Placing Platforming Limited. This programme was introduced as part of a future operating model, which evolved with the purpose to digitalise the tradition of paper slips deals that are hand signed, stamped and delivered to the box. Adopting the PPL across 400 organisations in London has been effective, indicating that the industry does have a desire to utilise new technologies. However, brokers are likely to have a lesser appetite for the computer broking system as it puts more onus on the client to find good cover, effectively increasing industry competition.

Final thoughts…
The insurance industry is one of tradition. As a result, the enthusiasm of firms to utilise new technologies varies. However, with the changing environment, firms must be aware of the most disruptive developments and demonstrate their willingness to participate in the new InsurTech space in order to survive in the wave of innovation.


Reeves, M., Levin, S. and Ueda, D. (2016) ‘The biology of corporate survival’, Harvard Business Review, 94(1): 47–55.

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