Applying the Lessons of FinTech to InsurTech
If there is a fraternal twin to banking, it’s the insurance industry. Both industries are built on managing risk, capital, compliance, and distribution. Not everything in FinTech will apply to InsurTech, but there’s a lot we can learn by assessing the impact of FinTech on the banking system.
Technology can be transformative or disruptive, like the invention of the computer, the internet, the iPhone, and efficiencies are often short lived. If you need an example, just take a look at small dollar lending in both the personal and commercial space within FinTech. Putting the entire application process into a digital format and with instant funding was incredible, but this has become the industry standard now.
No single technology will be the holy grail. Instead, a company’s ability to continually innovate at a fast pace will become the goal. Here are some common mistakes that I have seen in FinTech and now within InsurTech as a potential technology partner:
Carriers cannot always articulate what problems they are trying to solve and what success looks like.
Decision makers aren’t involved enough or don’t provide enough support in the innovation process.
Failing fast or testing concepts is cumbersome.
More data has been created this past year than all the previous years combined and there’s no way that any regulator can keep up with the proliferation of data and technology. As the InsurTech movement matures, I’d expect to see a lot more interaction between regulators and InsureTech companies. Even the regulatory side of the business will shift given enough time and it’s important that each carrier understands the shifting sands. Start-ups are more likely to lead the charge and push the envelope, but I think it’s important that they are not the only voice at the table.
There are only so many people looking for financial products at any given time in the market and they’re not always in the digital channel. FinTech lenders, over time, became adept at customer acquisition through digital marketing. When they ran out of market share in the digital channel, the obvious place to hunt for customers was through the banks themselves.
InsurTech, like FinTech, will find a pain point that big insurance companies cannot address efficiently. They will exploit it for what it’s worth, but will need to broaden their distribution over time through partnership. While digital channels are incredibly appealing, brokers/agents are still relevant to many people. The point is that the digital market is a growing pool, but that there’s still a much larger body of water to fish from.
FinTechs were extremely strong at finding niche markets that could be easily exploited under the noses of the banks. The same will hold true within insurance, but the demands of investors and capital will drive these InsurTechs to go after an even greater share of the consumer wallet. All companies are fearful of the Amazon’s and Apples entering the financial services market and they could be fearsome competitors. However, it’s the FinTechs like SOFI, Marcus, Chime, Varo, Robinhood, and countless others who are beginning to bundle multiple products to create modern, digital banks. Whether it’s InsurTech’s doing the same thing or possibly some giant FinTech player coming into the insurance space, I suspect it’s a matter of time that someone will try to create the Amazon of the insurance space.
It’s certainly going to take a while for all of these predictions to play out, but it’s important to have a long view on these matters. Depending on who you are and how you are positioned in the industry, the hindsight of FinTech may be prescient for your company.
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