An interesting article writen by Oliver Ralph from the Financial Times that is worth to publish and share on that blog in view of the objectivity of its content.
Finally someone is spot on! He diagnoses perfectly the paradox of Insurtech, innovation and disruption of the industry.
We are facing a competition of communication, fund raising, PR effect. The one who publish and write most win the game of change. The reality is simpler and poorer. Few true innovation! As for those that try, they prefer focusing on working in making their concept working.
Too many speeches, too much white noise, not enough effective transformation.
There is plenty of froth around Lemonade. The start-up, which sells home insurance in New York, certainly knows how to draw attention to itself. It recruited Dan Ariely, a bestselling author on behavioural economics, to give its business model some academic weight. It has launched a full throttle assault on traditional insurance, calling it “an industry that consistently frustrates its consumers”.
It has a novel business model, which involves donating to charity any money that is not used for claims. And it provides eye-catching updates on its progress. Last week it said that it had paid a claim on a lost $979 Canada Goose Langford Parka just three seconds after the claim was lodged.
It has also set off a passionate debate in the insurance blogosphere. Rick Huckstep is a big fan, saying that “the insurance industry will never be the same again.” On the other side Christopher Boggs argues that: “Lemonade doesn’t exist to change the insurance industry, it exists to get all the venture capital it can. Once that dries up, Lemonade’s memory will be a sour one.”
What is does not have - yet - is scale. It only got going last September and, so far, only operates in New York, although it is planning to expand across the US.
Insurtech has plenty of businesses like Lemonade, with a smart idea, a well designed app and great hopes for the future. Trov, which sells on-demand insurance for single items such as phones and cameras, is another, and there are plenty more.
But none of the start-ups (with the notable exception of China’s Zhong An) have yet reached the mass market. There is no Uber or Airbnb in the insurance market, no big disruptor that has shaken up the incumbents.
Steve McLaughlin, managing partner of San Francisco-based investment bank Financial Technology Partners, says: “Successful tech companies such as Uber have addressed a material and frequently recurring 'pain point' where there is a real customer need,” he says. “It is not clear that such equivalent 'pain points' exist in insurance."
He adds: "One of the challenges is that millennials have been driving a lot of adoption in new business models, but they do not necessarily own the sort of things that need insuring, such as houses and cars."
Executives at the world’s largest insurers are interested in insurtech, and they areinvesting billions of dollars in it via VC funds, incubators and internal projects. But they are not panic-stricken. Yet.
That is partly because the big buzzword in insurtech is partnering rather than disruption. The theory goes like this: start-ups do not have the time, patience or money to get involved in the tiresome regulatory and capital-intensive parts of insurance. So instead they partner up with established insurers who have the capital and the regulatory expertise but lack the tech know-how.
There are plenty of examples - Trov has partnered with Munich Re, Axa and Suncorp while Simplesurance has teamed up with Allianz.
The set up carries risks for both sides though. The start-ups could find their ambitions held back by the limited horizons of their insurance partners. The insurers, risk becoming pure capital providers, leaving the prized customer relationship with the start-up.
Which is why Lemonade is so interesting. Unlike most of the other insurtech entrants, Lemonade is an insurer itself with its own licence in New York and is applying for more across the US. If it succeeds, it will be proof that partnership is not the only route, and that disruptors can raise money, set themselves up quickly, take on the established insurers, and even win.
“If they do well, it is likely to spur others on,” says Nick Martin, a fund manager at Polar Capital who also advises early-stage companies. “If not, it is a setback for the insurtech world.”
Matthias de Ferrieres has more than 15 years experience in the insurance industry in Asia.