Insurance is one of the most heavily regulated industries in the world. For startups entering the scene, this poses a double challenge. Firstly, navigating the complex, ever-changing regulations requires knowledge as well as experience that many new companies have not yet accumulated. Secondly, the burdensome regulatory regime has often been relied on by incumbents to keep the more dynamic startups at bay.
While regulatory compliance can indeed be troublesome for the digital upstarts, according to Stuart Kelly, “these are not insurmountable challenges.”
He said that “the regulations are fairly clear. As long as you’re doing the right thing, the regulators are always happy to work with you and make sure that things are right.”
According to McKinsey, some countries, such as Australia, Singapore, and the UK, have even lowered the regulatory barriers and encouraged insurtechs to test their innovative business plans on specific client segments without having to comply with the full regulatory frameworks that apply to existing insurance companies.
A bigger challenge, Stuart believes, is…
When Zego was launched, the company didn’t have sufficient funds to underwrite all of its insurance policies and it had to work with the existing insurers. The IT systems of these companies were, at times, “old and slow-moving”. Integrating with legacy-type software was a tall order for a startup that decided to build their own, customized system using the latest technologies available.
While, as Stuart noted, some parts of the legacy systems are so integral that making changes to them would be very difficult and potentially risky as well as expensive, what’s also challenging is changing the mindsets of the industry’s top executives.
As he noted, “Zego is fostering change in the industry by encouraging insurance companies to up their games” and open up new technologies.
what seems to be a major limitation can also be used to the insurance upstarts’ advantage. According to a report from McKinsey, insurtechs can enter the market in fundamentally different ways that incumbents can. An advantage insurtechs can exploit is “their freedom from legacy products, processes, and IT systems. They are able to design digital processes, products, and systems from the ground up, relying on the latest technology.”
With the introduction of the GDPR regulations in the European Union as well as various data breach scandals reported in recent years, many consumers took an active interest in how their personal data is collected and used.
Since the insurance businesses require a lot of data to assess each individual application accurately and offer the best policy, it’s no wonder that many users started becoming wary of providing a wealth of personal data without having a clear understanding of how it would be used.
To alleviate customer concerns, the first step is to make the terms and conditions transparent so that each user is aware of what happens with their personal data.
However, Stuart Kelly believes that it’s not enough for insurers to simply state how they use the information to satisfy growing customer demands. They need to demonstrate the tangible benefits of providing data; a practice that many conventional insurers still fail at.
For instance, by applying telematics, a technology tracks the location, movements and behavior of a vehicle, Zego collects a large amount of data on each of its customers. However, once a customer becomes aware that it is used to calculate their insurance premium more fairly and not simply for the insurer to profit from, they’re more likely to take a positive view of the data collection.
The way people work has changed significantly in the last decade. There has been a marked shift away from full-time, 9-5 desk jobs to more flexible modes of employment.
The insurance industry, however, has been slow to respond to the needs of the gig economy. Many companies still operate a conventional insurance model that fails to take into account the realities of the modern workforce.
For instance, until recently, it wasn’t easy to insure your vehicle for hours (or even minutes) at a time, even though such a policy perfectly fits the reality of the couriers employed in the gig economy.
This inertia poses both a challenge and an opportunity for the insurtech startups looking to enter the market.
One the one hand, insurtechs are pioneering their innovative solutions against the backdrop of a stagnant industry that hasn’t seen much change in decades. That’s bound to meet with some resistance.
On the other, however, young, digitally savvy customers expect more convenient services than those currently on offer. Such customers want to make instant, remote transactions without having to visit a branch. They also want to retain control over their personal data. These factors are likely to encourage certain customer segments to do business with the startups rather than the incumbents.
The economic backdrop has undergone further change during the Covid-19 pandemic, which highlighted inefficiencies in the industry as well as potential areas for improvement. As a result, insurtechs’ efforts to focus on fast and seamless digital experiences were validated.
Insurtech companies pay a vital role in bringing the digital revolution to the stagnant insurance sector. While doing so, they face plenty of challenges, from a heavily regulated regime to heightened privacy concerns.
To be able to bring their innovative ideas to life, insurtechs need custom-made software solutions that closely match their needs.
We’re proud to have supported Zego with building their software. This allowed the company to offer its pioneering services to its clients, and contribute to changing the whole sector by encouraging other providers to embrace the latest tech solutions.
If you work for an insurtech or a fintech, have plenty of ideas and need someone to help you create the software, don’t hesitate to reach out to us.
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