Will the coronavirus catalyse the insurtech market?
Being provided with food, minimising social contact, keeping themselves and their families healthy — in times of crisis, people focus on basic needs. What they have in common is the desire for security. Insurance companies meet this need for security in certain respects and are therefore becoming increasingly relevant to society. This is especially true in times when coronavirus has turned our everyday lives upside down.
It is not only private households that are in trouble. A glance at the stock market reveals that the pandemic is having a massive impact on the global economy. The airline and tourism sectors, for example, are hit particularly hard. And even though security is especially important at the moment, the crisis is becoming apparent in the drastically falling stock market prices of major insurers such as Axa and Allianz.
Coronavirus and insurtech
How are insurtechs coping with this situation?
Getsafe, the digital insurtech company, for example, recorded the strongest month in its young history, with over 10,000 new customers and a new product launch.
It is nothing new that the insurance world has to become digital. Under the extreme conditions of the coronavirus crisis, it is clear that insurers and especially agents and brokers who have not adapted to digital structures are having difficulties. Their sales are currently collapsing. A sudden switch to the digital world is often not possible. This is partly because the technology is lacking, but also because successful digital direct sales requires a different mindset. Where this affinity for technology is not available, there is also a long-term problem of recruiting new talent for the companies. Working as an independent insurance broker in sales is becoming less and less attractive for future generations.
Social distancing means that companies have to enable their employees to work from home. Insurtechs are equipped with a good technological infrastructure so that they can easily switch their operations to remote. Insurers that are less technologically advanced will find this transition more difficult. This is particularly problematic for time-consuming processes in underwriting, customer service and claims handling. If delays start to happen here, this quickly has a negative impact on customer satisfaction.
UK Insurtech CDO discusses his role and the promise of the sector
Innovation is not enough
But it is also clear that innovation alone is not enough to survive the crisis. For underfinanced startups, the situation is becoming precarious because financing is expected to collapse in coming months. The pandemic will weed out startups that do not have a sustainable business model.
The German government has already assured that startups can also apply for funding from the Economic Stabilisation Fund.
This is a positive sign, but the German Startups Association believes the measures are not sufficient.
The association, under the leadership of Christian Miele, has therefore drawn up a four-stage plan and submitted it to the Federal Ministry for Economic Affairs and state-owned development bank KfW (Kreditanstalt für Wiederaufbau). Importantly, the plan envisages that financial aid will not be given to the startups themselves, but to the investors. This will ensure that funds are not used to rescue startups that did not have a promising business model even before the crisis. It is hoped that the German government will help prevent startups from dying out on a large scale.
Coronavirus Diary: the impact on a tech startup in the live events sector
As part of Information Age’s Coronavirus Diary series, Fred Krefting — co-founder and COO at You Check — discusses how the pandemic has affected his business, while looking at what challenges lie ahead and the opportunity to re-strategise. Read here
Traditional insurers still a mainstay
The large traditional insurers, on the other hand, do not have to fear going bankrupt overnight. The largest global insurance companies each have annual revenues of well over £80 billion, more than twice the revenue of Facebook in 2018. It will take years for insurtechs to approach this magnitude and gain comparably large market shares.
And yet I am also convinced that established companies need not only technological change, but also a change in mentality. In five years’ time, the broker business will no longer be able to find new employees. In ten years’ time, medium-sized insurers will face existential difficulties. And in 20 years’ time, no one will have paper policies in their drawers. The coronavirus pandemic will accelerate this digital transformation considerably.