Digital Insurance: How Incumbents Should Think and Act Like Challengers

Digital Insurance: How Incumbents Should Think and Act Like Challengers

In an increasingly digital economy, insurtechs are leading the way. How should traditional insurers think and act like challengers to preserve their leadership position?

23 September 2021

In an increasingly digital economy, insurtechs are leading the way. Insurance incumbents should not fear pressure. They still can preserve their leadership position. FintechOS shows how.  

Maya is a so-called “charming” artificial intelligence bot working in insurance. She was born to craft the perfect coverage for each customer in seconds and check their claims and pay them in minutes. 

“Last month, she resolved 30% of incoming customer emails, saving our CX team 3,400 hours. That’s 3,400 extra hours they could dedicate their human skills to more complex feats, like claim emergencies”, Lemonade, the tech-savvy and AI-driven insurtech that created Maya tweeted last April.  

Lemonade disrupted traditional insurance by bringing a new business model based on innovative technology and behavioural economics. Now, the company claims to have attracted “over 1 million happy customers” since 2015, when it was founded.  

If “happy” customers love Maya for the hassle-free and cool experience that she offers, well, her industry peers are likely to fear her. Most of the research sneaking into insurance CEOs’ agendas in the past years revealed the pressure that incumbents feel because of the fintech disruption and its far-reaching effects. 

For instance, in its 2020 Annual Global CEO Survey among insurers, found out that the top three opportunities that CEOs are prioritizing, and investing in are customer experience, core technology transformation and intelligent automation (including robotic process automation)¹.

KPMG also noted some years ago that “in an increasingly digital world, digitizing the customer experience is a key priority”. They pointed out that insurtechs are leading the way, “rethinking, streamlining and simplifying the entire customer experience”.  

Here are some numbers which reflect the huge changes that are underway in insurance IT. In 2020, the insurtech sector hit a record high, the global investment reaching $7.5 billion (up +21% from 2019). Also, the growth of the insurtech ecosystem was 35% over the previous year². 

So if insurtechs are leading the way, incumbents need to keep up with the high pace of change to preserve their leadership position – but how? 

This September, FintechOS ran its own research* among 100 decision-making executives in digital insurance to answer – rather than ask – this central question: What can larger, longer-established insurers learn from digital challengers?

Digital – a tool or a strength? 

While 40% of insurtechs view digital as one of their main strengths, only 26% of traditional firms​ feel the same, FintechOS’ survey found out. This is partly because traditional firms are 1.4x as likely to associate digital investments with their business-as-usual needs: “internal IT improvements and internal efficiencies”. 

You can find below other key findings of the research (See Fig 1): 

  • Respondents from traditional and digital-first firms were equally likely to associate investment in digitalization with growth; 
  • However, traditional firms were 1.4x as likely to associate digital investments with internal IT improvements and internal efficiencies​; 
  • Digital-first firms were more likely to focus on benefits for customer engagement and satisfaction – 62% vs 44% of traditional firm respondents chose this option;  
  • Digital-first firms were twice as likely to consider digital improvements to be about attracting outside investment​;
Fig 1: Key benefits of investment in digital capabilities – Source: FintechOS Survey “100 decision-making executives in digital insurance”, UK focus, September 2021

Think and act like a challenger  

Even if incumbents feel the pressure to go digital, “the speed to change and to innovate is slow”, Ishaq Kothawala, CEO and Founder at Waada Digital Insurance commented during a webinar that FintechOS hosted last week to discuss the results of the survey together with other industry experts (you can watch the webinar recording here). 

Waada is a Pakistan-based insurtech startup, specializing in retail insurance (currently focusing on micro life, disability and hospitalization insurance). 

So, what can incumbents learn from challengers to speed up change? 

 #1 Start small

They can’t exactly act as nimbly as new entrants because of their legacy systems, the traditional culture, and resistance to change. However, insurers – who tend to be internally-focused – could “start small”, as Puneet Bharal, Digital Insurance Solutions at FintechOS suggests.  

Digital revolution can’t occur overnight, he observes, especially since “internal efficiency and compliance continue to remain a top priority for traditional insurers”. 

 #2 Customer-centricity is critical

During the FintechOS’ webinar, he recalled several examples of challengers who started small – Lemonade (USA), DeadHappy (UK) and Zhong An (China) – but disrupted big. Disruption happens when customers discover, buy and trust insurance in a different manner: it’s digital-first, simple, transparent and fast. 

Lemonade quickly gained customers because it “simplified the product – i.e. the offering, terms and conditions –, and the overall entire customer experience”, Bharal explained.  

“If you can’t be customer centric at least be user friendly”, urged Dominique Roudaut, Chief Strategy, Partnerships, Innovation Officer Hannover Re Asia / Head of Personal Lines Hannover Re Asia. 

As a key takeaway from the webinar, all speakers agreed that incumbents could learn that from their digital challengers and could shift to customer-centricity if they wanted to preserve their leadership position. 

#3 Prepare for an on-going journey

Finally, incumbents can embrace “being open”. However, Navdeep Arora Advisor, and Investor InsurTech / Digital Insurance believes that “incumbents need to stop thinking about innovating within the fabric of their own DNA.”

Where to infuse a new mindset from? “New ideas and new ways of working require a fresh set of eyes. Other industries have people who have walked the digitisation path before”, Puneet Bharal pointed out. 

“We need talents from different sides”, Ishaq Kothawala (Waada Digital Insurance) agreed. But shall we not forget that “talents always need to have a business head on their shoulders”.

There is a particular feature of challengers that the FintechOS’ representative puts a spotlight on. New entrants are not burdened with Business-as-Usual concerns that can slow down and derail incumbents’ digital initiatives.

“Digital initiatives are not once-and-done projects but on-going journeys which benefit from incubation from parent-company concerns.”

Puneet Bharal 1567072442466
“Digital initiatives are not once-and-done projects but on-going journeys which benefit from incubation from parent-company concerns.” – Puneet Bharal, Digital Insurance Solutions at FintechOS

Not there yet 

But if digital initiatives are “on-going journeys”, hence innovation is continuous, as Puneet Bharal points out, then how do incumbents measure their progress on digital? Are they happy so far? 

An interesting finding of FintechOS’ survey is that over half (62%) of traditional firms say that “they are not yet where they want to be with digital, or even consider it a friction.” 

Curious finding: not only incumbents have experienced frustration with digitalization, but also new entrants, according to the survey. More than that, executives in firms which identify as being “fully-digital” are self-critical about their progress 

But incumbents are not only self-critical but also self-confident – this happens when it comes to preserving their leadership position. Traditional insurers have the advantage of having seen other industries disrupted, and are additionally shielded by the regulatory and capital requirements that provide “high barriers to entry for challengers”, Puneet Bharal commented. 

Nonetheless, while so many other things are changing in the wider landscape and economy – in terms of usage vs ownership, permanent employment vs freelancing, climate change, global political/civil unrest and increased AI transferring risk from individuals to machines/their developers –, insurers are faced with a different set of risks to address, for which historical data do not exist.  

 How to preserve leadership 

 “The old models for insurance may not fit anymore, and the old engagement models are already out of favour for consumers.” Therefore, to maintain their leadership position, “incumbents have some good tools at their disposal already”, according to Puneet Bharal, Digital Insurance Solutions at FintechOS. He lists them below: 

 #1 Make use of technologies

 Where agility is required to launch new products quickly, technologies exist to aid that.  

 #2 Work with MGAs and brokers

 Where market knowledge, reach or relationships are required to address new opportunities, working with MGAs and brokers to develop and place new products has real potential. 

 #3 Create new business models

There will be opportunities to embed insurance into the business models of retailers, service providers and manufacturers, too – working with data-rich companies like Amazon and Google, car manufacturers like Ford and Mercedes-Benz or home builders and office and apartment facilities management companies and AirBnB. They all know the consumer and the products better than insurers do, and they increasingly have some element of risk mitigation capability built into their products through sensors and IoT. 

“Insurance need not be a separate purchase, but a bundled service that provides peace of mind, preventative risk management and more than just financial indemnity, but also services to put right what went wrong – e.g. replacement products, loan cars, immediate home repairs and hotel stay where needed. That is a better service for the customer and potentially less risk for the insurer. Incumbents have many opportunities open to them”. 

Now, insurers must be open to opportunities themselves, listen to customers, break silos and embark on an ongoing digital journey. That’s exactly the business philosophy that big tech challenger Amazon, today a multi-billion-dollar business, was built upon since the very beginning, in 1996: “to be Earth’s most customer-centric company”.  


*About the research: 

In September 2021, FintechOS surveyed 100 decision-making executives in digital insurance in partnership with Censuswide. 87% were UK-based. Respondents stated they have “decision-making power over major digitalisation projects“. 


MAIN PHOTO Credit: Unsplash 


Register now to watch the full recording of the webinar. 






Related articles: 

Customer Centric Insurance: Fixing Broken Trust 

SME Insurance: The Three Golden Rules of Customer Centricity Done Right 

The Road Ahead: How We Can Reinvent Insurance 

Five Prerequisites for Becoming a Digital Insurer 

Customer-centricity – A Matter of Cultural Shift 

Life Insurance in the New Normality – Three Take-Aways 

Insurance: What’s On the Horizon? 

How Insurtechs Are Winning Trust 

Insurance: The Scale of the Crisis 

What’s in Store For Insurance In 2020? Three Take-Aways