James York, founder of new online insurer Worry+Peace, looks at the potential for innovation in the insurance market.
One tech sector where the UK enjoys a complimentary competitive advantage from the traditional economy is fintech, with a recent article from the Telegraph naming it the top performing investment vertical for angel investors. I’m from the corner of fintech I call, financial commerce, ‘fincommerce’, which is all about insurance.
So how is the fintech wave going to affect insurance?
Insurance employs 314,000 people in the UK, contributed £11.8bn tax in 2014 and is the #1 EU market, third in the world behind Japan and the USA. Unlike banking, there’s still a widely dispersed SME diaspora across the country. Thanks to EU rules, these businesses can ‘technically’ trade across the continent. With a robust wholesale market and the most sophisticated insurance-buying consumer base in the world, there’s virtue galore.
At the sharp end, it’s my bet that not one, but perhaps three apex-level brands can feasibly emerge from our shores and scale globally in the consumer space.
A few are already trying. There are a number of ‘alternative model’ startups - which include Oscar in the US, changing health insurance buying; Friendsurance, from Germany, who have pioneered a new distribution model; and Guevara, London-based and are similarly creating a social alternative model in the UK. These areas are yet to be tested by claims over time, though.
Then there are brands looking to perfect the model that’s already there - making neo-traditional consumer stores. Bought By Many - who capture specialist areas under-served by standard products - is a great example. We will all need time and support from investors who see the opportunity. The race to brilliant choice is also a key battleground.
That’s a mere handful plucked from the easiest bit of the supply-chain. What truly excites is the vastness of the industry behind the scenes. From thousands of quote engines to the regular compliance regime and the regulation that costs us all masses of money – you would not believe the opportunities to streamline and unlock value for consumers.
Insurers don’t need disrupting per se — the distribution does. That’s what’s ripe for innovation. For once, it might be a good thing for the incumbents, too.
There are problems, though.
Unlike other financial products that have leveraged peers and crowds, insurance is a distressed-buy. It is also a derived purchase. You buy a promise - but only use it if brown matter hits an airblade. Loans, funding - they are ‘right now’ things. Alternative models will face the exact same problems experienced insurers do.
You also can’t just code an insurance shop or head to Costco, register and start selling insurance contracts from bulk. The industry is gated by a regulation structure that could even put accountants into a coma. That’s in spite of the FCA championing the consumer. The insurers are also rightly conservative about who they trade wholesale with.
Then, there’s consumer confusion. Most can roughly explain how that can of coke got into hand, from factory to store – but insurance? The reality is pretty clean and linear – the understanding not so much.
Since it’s grudge-buy, how can we expect investors to understand or get eager about the prime chance of equity fincommerce? Thus, new brands are typically forged ‘top down’ – with big marketing budgets. Less startup, more like double down.
Our industry is getting its act together. I’m a campaign partner with the Insurance Age’s Fintech Futures drive, whose aim is to manifest an environment where existing and new talent can create. When the industry opens up about its experience, mistakes, and ambitions — a lot of opportunity gaps will need filling.
If you thought fintech was lucrative already, wait until Financial Commerce joins the party. A sleeping giant is about to wake, mark my words.