January 7, 2017

Insurtech is taking off – but is the UK ready to fly?

Investment in insurtech is outpacing investment in other areas of financial technology, but the London market needs to work harder at building bridges between risk carriers and the tech community and to think about insurance in new and challenging ways

Imagine for a moment the world’s financial markets are all housed inside a single plush hotel. Ask yourself this question: what kind of room is the London market? Is it a large, open-plan suite of tinted glass, stainless steel and polished marble? Or is it the dusty box room next to the lifts? For many, the answer is going to be the latter, which is an interesting comment on our own perception of our marketplace.

That perception has been reinforced by the insurance market’s troubled relationship with new technology. London in particular has struggled with both the macro and the micro – the market-wide connectivity and individual business-level initiatives.

But that perception, and indeed the underlying reality, is changing. For most of 2016, investment in insurtech – the innovative use of technology in insurance – outpaced investment in other areas of financial technology.

According to Accenture, insurance technology investment in the UK has surged three-fold in just a year. The company’s latest data revealed Britain’s insurtech investment has rocketed to more than £16.5m ($20.3m) as of August 31. About time, you might say, and you would be right. Years of nervous inaction and indecision have been washed away by a wave of innovation and the growing know­ledge that unless the insurance sector disrupts itself, external forces will do the job for it.

Prime examples of insurtech innovation in the international market have ranged from the launch of peer-to-peer insurer Lemonade in New York for home insurance to the sale of drone insurance via a mobile app by Verifly. In the UK, mobile app Trov allows users to protect domestic electrical items in conjunction with Axa.

This dramatic growth in insurtech looks set to continue in 2017. Entrepreneurs, investors, insurers and other players in the insurance industry will intensify their efforts to bring innovation and modernisation to the sector. These developments will affect every part of the insurance industry – especially personal lines – from sales and marketing through underwriting to claims administration.

However, there are hurdles to overcome. In the US, state laws and regulations will require a rethink to avoid stifling innovation as many were formulated to address the sale and administration of insurance in ways that will cease to be relevant. In the longer run, insurtech developments might even create pressure for greater federalisation of insurance regulation. Because the new technologies will have a greater nationwide reach, state-level regulation of insurance in the US may become increasingly difficult to administer.

Hurdles are also being surmounted in Singapore, where one very significant development is taking place. Regulation that has proven to be a brake on insurtech development is set to change in 2017, with the Monetary Authority of Singapore’s (MAS) introduction of its fintech regulatory sandbox. This will enable financial institutions, including insurers, as well as technology companies, to experiment with innovative financial products or services in the marketplace, but within a well-defined space and subject to appropriate safeguards to ensure any negative consequences can be contained. 

Significantly, the MAS has confirmed it will provide appropriate regulatory support, including relaxing its own specific legal and regulatory requirements, where they may inhibit the development of a sandbox project.

Since launching the sandbox, the MAS has received a number of applications for participation. It has also bolstered the programme with the release of regulatory guidelines to provide applicants with details of how the initiative will operate. Perhaps the most telling sign this initiative will gain momentum in 2017 is the 20-plus innovation labs established by insurers, banks and technology companies that opened their doors at Singapore’s inaugural Fintech Festival in November.

In the UK, the government has pledged to ensure conditions are ripe for insurtech to flourish. Eileen Burbridge, HM Treasury’s special envoy for fintech, went on record to say the UK would do what it could to grow the country’s fintech economy.

But the UK still has much work to do. According to KPMG, of the 20 biggest insur­tech investment deals done in the first half of 2016, 15 were in the US, three in Asia and two in the UK. If we want to avoid being the dusty box room amid the glamourous suites and penthouses of the world’s other global financial markets, we need to work harder at building bridges between risk carriers and the tech community.