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Four Reasons Why InsurTech Startups Won’t Get Subdued by Traditional Institutions

21 September 2018 16:27, UTC
Denis Goncharenko, Bitnewstoday.com; Kobi Bendelak, CEO InsurTech Israel

Previously, we wrote that InsurTech makes its way to the global markets and attracts attention as a lucrative investment target — technological breakthrough can provide 10% ROE to the insurance companies. But consider the hypothetical situation: what if the traditional players decide to oppose the threatening force of InsurTech? Definitely, this won’t happen directly, but it would provide some time for the legacy players to regroup and hold their market shares tighter. The idea doesn’t come from nowhere, after all: InsurTech follows the path of FinTech industry, and the markets have seen a painful setback of global investments since 2015.

So what could happen if the global players decide to subdue the new ideas and developments of technological solutions? This hypothesis attracted some attention, as the new market players shared their opinions. Gustav Holst STUGE, CEO of InMyBag project from London, connects it with the idea that “the good ideas don’t come from global players, they come from entrepreneurs and they will continue to innovate as long as incumbents don’t.”  Meanwhile, Mitchell CHAN, Fintech Analyst at DBS Bank of Singapore, adheres to the principle of natural selection: “Stakeholders get better at identifying quality startups, weeding out the weaker ones. The weaker InsurTechs, or those that are not able to provide true value, will get ‘subdued’. On the flipside, high quality startups should not experience barriers in terms of deals, fundings, partnerships — the ones that will really disrupt the industry.”

Bitnewstoday.com also contacted Kobi BENDELAK, the man who knows the insurance industry from the inside. Mr. BENDELAK is a CEO of InsurTech Israel, a fund, which focuses on investments in early-stage InsurTech startups companies developing advanced technologies for the insurance industry. He gladly shared his discourse on the possibility of hypothetical threats.

An important question in the InsurTech industry is how the big players in the market, especially the insurance companies, relate to the InsurTech world — whether they feel if there is a threat or an opportunity. From conversations that I made with many insurance companies around the world, especially in Europe, I am impressed that there is a great deal of interest in the field of InsurTech. Is it a matter of great curiosity and a desire to understand what has happened behind the wall, or that interest is genuine accumulated in order to adopt new changes and technologies?

The answer to this question is specific to each insurance company. There are insurance companies that do assimilate innovative technologies and ideas. I see this in Israel and around the world, and there are insurance companies whose interest stems from curiosity. The difference between these types of companies is mainly from the position they hold and the desire and ability to advance processes, as well as the challenges facing to the specific firm. Almost every insurance company will agree and quickly set up a meeting if a startup contacts them. The problem is in the implementation of the processes that are complex and take away many internal reasons in the insurance company. External reasons, such as regulation, are a barrier too. This raises the question of whether and at what stage, the insurance companies will choose to decide to stop and even prevent the advance.

Getting back to the main hypothetical question, the answer is an unequivocal “no”. They will not succeed even if they want to do so. Mostly due to four reasons:

  • Firstly, insurance companies are not the single group: they differ in the types of insurance products they sell and their location.

  • Secondly, they do not have a strong and leading (even technological) factor that is able to formulate a unified front.

  • Thirdly, regulators in most countries also support measures of change and innovation.

  • Hence, there will be considerable difficulty in stopping the process, but the main reason that the insurance companies can't subdue the new ideas and developments, are the customers.

For quite a time, the customers expected insurance companies to make changes and bring innovation and technological progress in the ways they are dealing with them. The insurance companies which are not able to make the necessary changes and interact with the customers in the way they expect it, will disappear from the market. Sooner or later. Hence, we understand that both the structure of the insurance world and the external factors affecting companies won’t allow the insurance companies to prevent the InsurTech from moving forward and becoming the main factor in this field.