We are used to talking about disruptions as a force at the global insurance stage – or even as a way to cover the billions of people in developing countries who remain uninsured.
Here, however, we turn the telescope to look instead at what insurance disruptions mean for a medium-sized national market – in this case Ireland, comparable in the volume of its domestic premiums to markets such as Belgium, Sweden and Austria:
Source: 2019 Solvency and financial condition reports
Has the insurance disruption reached Irish beaches, or are traditional barriers to entry protective of change? Do Irish executives play defense or offensive? And how do they best shape their innovation efforts?
We answer these questions in today’s post, as well as in our accompanying report: Irish Insurance 2021 – Set the Disruption Agenda, developed with the support of Insurance Ireland. Ultimately, we believe that Irish insurance companies have everything to play for, and that their experience and future prospects can serve as a litmus test for similar markets both in Europe and beyond.
Technology Vision for Insurance 2021: We describe five emerging technology trends that will affect the insurance industry in 2021 and beyond.
Traditionally, medium-sized national markets such as Ireland have been tougher nuts for potential disruptors to crack.
They do not offer the mature scale of the United States or the uneven opportunities in East Asian markets – which means that business in general must be won by entrenched competitors. At the same time, they require expensive product localization and adaptation, for example in the form of a physical sales force or historical data sets that cover customer behavior and requirements trends, as well as compliance with a new set of rules.
However, these barriers – technology, distribution and regulation – have decreased significantly in recent years, which has changed the disruptive calculation.
It is becoming increasingly uncomplicated to start up an insurance business. Much of the value chain can be replicated by utilizing platforms, outsourcing and cloud technology. Furthermore, digital distribution means that presence on major streets is no longer a table game.
This evolution from large front-loading costs to as-a-service methods — far from unique to insurance — enables innovators to dip their toes into smaller markets in a way they could not before. And at least in the European Union, legislative convergence allows for greater economies of scale in terms of compliance costs, with disruptors that can aggregate several smaller territories thanks to access rights.
Insurtech operators wanting to break into markets such as Ireland face lower barriers to entry than ever before. Take Lemonade, for example, which was launched in Germany in 2019 with a cloud-based operating model, digital distribution and the right to sell across the EU. But just because obstacles are lower does not make them low, as our broader Insurtech trends show.
Despite massive valuations, Insurtech carriers are a thin slice of Insurtech’s total sector – only 41 globally, according to Accentures Insurtech Watchtower. In addition, they seem years away from the kind of scale that their current competitors enjoy. Lemonade, for all its pan-European ambitions, still sells only in Germany, France and the Netherlands.
Source: Accenture Research Insurtech Watchtower 2020
This failure of start-up insurance companies to date to strengthen the industry is the basis for one of our most important findings in the Irish market: disruptions, according to them on the ground, are modest. However, this lack of obvious challengers must not inaugurate the existing ones in a false sense of security. There are various less obvious ways that distractions can still get them off balance.
A possible future sees start-up insurance companies cracking larger markets and then transferring the successful model to smaller ones, inoculating a market presence, rather than nurturing one. Another possible future – in fact one that we believe is more likely – is what we have called pressure disturbance.
With 89% of Insurtechs in the “operational enabler” and “digital agency” categories – collaborating with existing ones instead of competing against them – it seems that established players may well be the key factors for disruptive innovation and that digital competition can easily heat up among them .
So when leading companies seek competitive advantage through incremental innovations throughout the value chain, those who do not follow will see their margins slowly compressed – and with them their ability to innovate out of trouble. Like the proverbial frog, laggards can boil slowly.
Become an innovation-ready company
Predicting the future of insurance disruptions is an idiot, as this is a book with many possible endings. In fact, if the last 18 months have shown us anything, it is that traditional stories can be rewritten overnight. However, insurance companies can still increase their ability to respond to the ever-changing story — or even write their own.
The organizations that have thrived under Covid-19 are those that have been able to renew themselves at a rapid pace and rework their products, services and working methods. And this readiness to innovate as the situation demands will help them win again as we enter the “new normal.”
Being ready to innovate is not necessarily about having the largest technology or innovation expenses. Rather, it is about having the right organizational and governance structures in place to support the innovation process from start to finish. We have identified three key areas:
Innovation strategy: the majority of large companies control innovation centrally – generally under a Chief Innovation Officer or dedicated innovation committee.
Innovation talent: companies not only need technologists, they need generalists and portfolio thinkers – to evaluate the business cases that underlie various technical choices.
Start-up engagement: If interruptions will be a technically driven hassle between the established ones, then better access to start-ups means better tools for your arsenal.
As we show in our report, Irish start-ups do better in some of these areas than others, so there are certainly ways to increase their innovation readiness further. And now may be just the time to get serious about this, not just for Ireland’s insurance companies but also for others in other national markets.
Today’s lack of serious disruption really creates a valuable window of opportunity for executives around the world. Without having to put out fires, they can take a more considered approach to secure the future of their companies, protect themselves from disruptive threats and even earn the freedom to seize disruptive opportunities themselves.
So far from being time to sit back, the second half of 2021 is an opportunity for the established to move forward, not necessarily by spending big money but by building their readiness for future innovation – for tougher battles can wait.
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