Issue link: https://maltatoday.uberflip.com/i/1161128
29.08.19 15 ANALYSIS WHETHER it's riding on a metro train, watching a bus drive past or scrolling through Facebook, they've been almost impossible to ignore. Adverts for disruptors in the finance industry are everywhere you look as app-based services become ingrained into the lifestyle of the smartphone gen- eration. In fact, you'll be hard-pressed to find somebody under 30 in a big city who doesn't have an app for the likes of Mon- zo, N26 and Noddle on their phone. Shaking up traditional players like banks, mortgage providers and stock traders has proved such a success for fintechs that insurtechs are now aiming to follow a similar path with the insur- ance sector. Industry influencer and author Rob Galbraith says: "You wouldn't have seen the development of insurtech without fintech, because fintech really showed what the art of the possible was. "Insurance has been in stasis for dec- ades in many cases. A lot of people say if you got into a time machine and went back 20 years to walk around an insur- ance company, it wouldn't look any dif- ferent than it does now in 2019. "is would have applied for the next 20 years too if it wasn't for fintech." Insurtech innovators have been slower to act than fintech If it was possible to travel back to even 2014, the experience Galbraith de- scribed for insurance would be starkly contrasted by banks urgently discuss- ing the emergence of "virtual banking" brought about by early start-ups such as Starling Bank. Almost five years later and Starling is valued at almost $3bn, with a string of fellow fintech unicorns keeping it com- pany. e experience in insurtech has been markedly different, with the sector pro- ducing just five unicorns so far — the most well-known being home insur- ance innovator Lemonade. Galbraith believes part of the reason for this is that insurtech hasn't experi- enced the same level of urgency to in- novate as fintech, and especially those in banking. "ey've actually been a little slower than the neobanks. e troubles the banking industry had between 2008 to 2010 got people reimagining banks and their core functions. "Insurance didn't have the existential crisis that banking had a decade ago, so people have been a little bit slower in their innovation. "But now there's a full focus on remov- ing the friction in the industry, they've thought 'why not go ahead and do this in insurance as well'." Daniel Pearce, insurance analyst at analytics firm GlobalData, believes the industry does realise to an extent that it lags behind other areas such as fintech, and that insurtech companies are look- ing towards the likes of Monzo, Star- ling, Revolut for ideas. "It knows that it's lagging behind oth- er areas of financial services in terms of its innovation, so whatever is happen- ing in those areas is naturally trickling through. "With banking being another mass market consumer financial product, a lot of the innovation is well aligned to make an easy transition into insurance." Now that the same reimagining pro- cess is going on in the insurance indus- try — largely spurred on by expecta- tions of higher efficiency and value held by millennials — organisations have put their rate of innovation into overdrive. A report released by management consultancy Accenture in February 2019, surveyed 577 business and IT professionals working in insurance. It found 96% of them felt emerging technologies had accelerated the rate of innovation in their own company as a response to emerging technologies in the past three years. Which insurtech innovations were inspired by the fintech sector? A key example Pearce gives is that in- surtechs and incumbents in the insur- ance industry have adopted apps and other technology to digitise aspects of the customer experience and reduce friction in the value chain. "We're seeing a lot of digitisation in insurance, with app-based interfaces replacing traditional processes, a lot more so in the last two to three years. "And this isn't necessarily just in the case of insurtechs, although the major- ity are down that avenue, but we're also seeing incumbents trying to leverage smartphone app technology a lot more. "Ease of use is definitely one area fin- tech has been an influence." He gives the example of Brolly, a start- up insurtech that brought to market a platform that allowed customers to manage their existing policies and buy new ones in a slick smartphone app. "at's definitely something taken from the fintech world," he adds. Galbraith agrees, but gives Lemon- ade as an example of an insurtech that didn't just see the value of the tech- nology seen in fintech, but also the approach of certain innovative com- panies that refused to work within the current system — and instead created something new entirely. "Anything with an intuitive inter- face where customers don't have to ask a human any questions or fill in paper-based applications is generally trying to replicate the speed and con- venience we see in other industries," he says. "If you listen to Daniel Schreiber, Lemonade's founder, he says he looked at it from an outsider and a technolo- gist entrepreneur's perspective, which meant he came in and said 'this is all terrible, there's friction everywhere in this process — we just need to blow up this whole thing and start from scratch'." Where has insurtech innovation been unique? There are certain areas of the insur- ance value chain that couldn't have been impacted had insurtechs read solely from the fintech blueprint. Pearce sees the motor insurance in- dustry as a key area where this applies, with telematics driving usage-based insurance arriving long before the fin- tech disruptors. He adds: "Usage-based insurance is one the oldest examples of insurtech. "It targets new drivers and those liv- ing in city centres that have very little need for a car except on the weekend, so it makes no sense for them to pur- chase an annual policy." A second example of insurtech inno- vating without fintech influence is the use of image-capture technology, used in tandem with AI to produce a better understanding of risk. Galbraith points towards social me- dia and e-commerce to show how Facebook and Amazon had a key in- fluence on the way insurtechs have used data, but in a way that's specific to their own value chain. He adds: "There's a lot of automa- tion and optical character recognition used, as well as machine learning, to take unstructured data and turn it into structured data — all of this feeds into rating algorithms to assist with underwriting. "Ninety percent of the world's data is unstructured, and insurance com- panies really struggled with that un- til insurtechs came in. Now they can take unstructured data from overhead images taken by aircraft or drones — or even just pictures taken on a phone — to identify content hazards. After structuring it, insurers can feed it into algorithms in really more of a Face- book, Google or Amazon type of ex- perience. This means insurance com- panies are competing on algorithms rather than people." Did fintech lay an innovation blueprint for insurtech to follow? Fintech is arguably one of the most impactful sectors ever to disrupt the global finance industry, with companies such as Monzo and Starling tempting customers away from traditional banks. Many believe that insurtech is now following a similar trajectory of disruption in insurance