Why Insurance Brokers are Looking Towards Technology?
Faced with increased margin pressure, enhanced competition for customers, a continuing low interest rate environment and increased regulation, many insurance brokers and insurers are now looking towards technology to help them acquire or maintain a competitive advantage.
However, there are signs that things are starting to change. Activity in the FinTech sector has increased significantly in recent years, with brokers and insurers actively competing head on with banks, private equity firms and other financial services firms to secure some of the latest technologies.Compared to other industries, the insurance sector has traditionally been slow to embrace Financial Technology (FinTech). Whether it's the use of analytics or the adoption of mobile and social media, insurers are lagging behind the digital curve.
In 2008 FinTech firms attracted just $100m in financing. By 2013 that number had increased to more than $3bn. Against a backdrop of strong competition, a growing number of insurers have started to take matters into their own hands by developing their own technology incubators, which are focussed on attracting talent and new ideas that will help build new business models that can ultimately improve service and add value for their customers.
Many insurance organisations are using a combination of strategies to keep up with the pace of technological change. Some firms will pursue an M&A strategy to acquire tech solutions, while simultaneously establishing new partnerships to improve their distribution and sales models.
Partnerships and alliances are attractive as they minimise disruption associated with the introduction of new ideas into the insurance sector. Changing an insurance business can be a complex endeavour and many brokers and insurers prioritise their existing book of business above the need to implement long term change.
Meanwhile a large number of insurance brokers and insurers, particularly large and mid-tiered firms, are scouring the FinTech sector for potential acquisitions that can scale up their business and give them a competitive advantage.
The most sought after targets are those that can bring insurance organisations closer to their customer base, such as firms that can harness large amounts of data to better understand customer needs, improve the customer experience, or tailor insurance solutions via new and innovative distribution channels.
A multi-strategy approach might prove to be the best way forward, particularly for larger organisations. The market is moving quickly and good ideas may emerge from a number of different sources. Those firms with flexible business models rather than a rigid strategy are best placed to capitalise on these opportunities.
Article by Sam Evans. Sam Evans is global insurance deal advisory lead at KPMG.