By Sarah Parker, Director and Insurance Working Group Lead, Financial Health Network
Navigating the hype cycle of the insurtech boom can be a challenge for any financial services veteran. To help us sort it out, I sat down with Wayne Allen, the COO of Insurance Thought Leadership. As an attorney, Wayne has advised entrepreneurs and investors on entity, transactional design, and operational issues for more than 17 years.
Sarah: Wayne, thank you so much for talking with me today. Tell me a little bit about Insurance Thought Leadership (ITL) and the work you do there.
Wayne: ITL started about five years ago with the notion that thought leadership is an important business currency. If you’re going to shape the future of an industry, you have to impact the way people think. At the time, we saw societal shifts happening, customer expectations were changing, insurtech was emerging, and insurance incumbents needed to meet some of these new customer demands. To that end, ITL produces free public thought leadership and has developed the Innovator’s Edge, which is like a matchmaker for insurtech startups and incumbent providers.
Sarah: Insurtech is very hot these days. How much of it is hype versus reality?
Wayne: First, I think it’s helpful to divide insurtech into two buckets. There are the distribution and direct-to-consumer offerings, but this only represents about 10% of the insurtech market. The remaining 90% of the market is comprised of technology solutions that impact some point along the value chain — operations, margins, underwriting, assessments, claims managements, etc. This latter category has a more immediate impact since carriers can introduce supply chain innovations pretty quickly. Direct-to-consumer plays may be hugely impactful, but they have a longer lead time. Second, it may be obvious, but it’s worth saying that insurance is a very complicated industry and as a result, it is highly regulated. It is difficult for technology innovation to influence insurance since you can’t afford to make any mistakes. People buy insurance for resiliency and claims have to get paid. We aren’t talking about technology for non-essential things like music or movies. There’s a reason why the hot startup Lemonade didn’t launch in all 50 states at once. They started just in NY with a very small initial offering. So with that said, my third point is that when it comes to insurtech, hype is defined by adoption and adoption can only happen when the regulators feel comfortable that the consumer has been adequately protected. It’s “transformation at the speed of reason” as we like to call it.
Sarah: Since we’re on the topic of regulation, what does the regulatory landscape look like for the insurtech industry?
Wayne: I think it’s easy to blame regulators for holding back innovation, but I wouldn’t use the words “hold back” at all. It’s hard to regulate what you don’t understand. I’ve found the insurance state commissioners to be very intentional about getting up to speed and educating themselves about new technology. Insurance is regulated at the state level, so it is up to each state legislature to decide the rules. That has the potential to lead to inefficiencies. But organizations like the National Association of Insurance Commissioners (NAIC) serves as the standard-setting and regulatory support organization to bring some consistency among states. NAIC has been very proactive when it comes to innovation. The state commissioners are generally aware that they can’t regulate the way they used to. I see them trying to really innovate the way they regulate.
Sarah: What insurtech startups are you most excited about?
Wayne: There are so many, it is hard to choose just a few. Some of the most amazing innovations seem like the most common sense ideas. RiskGenius is the “Google of insurance policies” and uses artificial intelligence to compare policies clause by clause. They are getting incredible traction, especially in the reinsurance industry. I really think every carrier will need some relationship with them eventually.
GAPro offers “verification as a service” by constantly validating the existence of any kind of certificate/proof-of-insurance information on a loan from the carrier to the bank. It is a paperless and efficient process. This may not sound like a sexy innovation, but I really can’t stress enough how much of a game-changer this is from a process perspective.
Pypestream offers the leading business-to-consumer messaging platform for insurance companies. I predict that Pypestream will become the de facto messaging system for the industry.
Infinilytics uses very cool technology to detect fraud. WeGoLook is reinventing the way claims are handled. Trov provides on-demand insurance and is doing some really interesting things on the distribution side. Again, I could go on and on. But all of these examples are creating better efficiencies, increased margins, and improved customer service.
Sarah: How have the incumbent insurance players responded so far to the insurtech boom?
Wayne: They’re all about it. Every CEO of every insurance company understands that insurtech is something to be dealt with. Some don’t believe it’s going to impact their businesses, and there may be disagreements about how insurtech is going to play out, but everyone agrees that it’s a real thing. The industry generally understands that over the next few years, top line revenue and margins will both be pressed, and technology and innovation will be a way to grow both of these things. When we talk to carriers, we advise them to look at insurtech not as competition, but as a growth strategy.
Sarah: What’s the best way for incumbents to leverage insurtech?
Wayne: Some insurtech companies are unbelievable tools that will eventually be used by every insurance carrier out there (like a few I mentioned earlier — WeGoLook and Pypestream). So it wouldn’t make sense for insurance company A to try to acquire these types of firms. But in general from a carrier perspective, I think acquisition, partnering, vendor/supplier relationships, licensing…all of these options are on the table. We’ll have to see how it plays out.
Sarah: To finish up, let me ask you a question close to Financial Health Network’s heart. At Financial Health Network, our main consumer focus is on the financially struggling in the U.S. What do you see as the current state of insurance in general for this consumer segment?
Wayne: Let’s be honest that insurance hasn’t been the most consumer-friendly thing on the planet. But that’s changing. For consumers from all socioeconomic levels, the industry is on its way to providing a much better experience, a much more connected experience, and a less frustrating experience. Those at the lower end of the socioeconomic spectrum have had a harder time with insurance because it’s complicated. I think insurtech will play a huge role in improving access for everybody, in particular for the folks that are struggling.
A shorter version of this article was originally published in the 2017 EMERGE Magazine. Register now for EMERGE 2018 before Summer rates expire!
By Financial Health Network on September 5, 2017.