There is no shortage of commentators claiming that the rise of InsurTech will transform traditional insurance beyond recognition. It’s time, then, to distinguish between hype and the real changes facing insurers, said Paul Mang, global CEO of analytics for Aon and Aon Benfield.
“If you attend any insurance conference where they discuss InsurTech, you’ll think InsurTech is an existential threat to this industry,” Mang said in his address to the annual meeting of the Property Casualty Insurers Association of America (PCI) on Oct. 16 in Chicago. “We really should put some of these assertions to the test. What’s really happening in terms of disruption of our industry?”
“Disruption implies the displacement of an industry,” Mang said. “It implies a situation where major incumbents find themselves pushed out of a sector.”
That’s not happening in insurance, at least not yet. For the time being, most property and liability risk is still covered by traditional insurance sold by insurance companies. The market leaders are the same as have been in place for many years, although altered by some mergers.
“I don’t’ think disruption is what we’re looking at,” Mang said. “Right now, a better word would be ‘partnership,’ or something like ‘co-development.'”
Mang embraces author Steven Case’s idea of an impending “third wave” of technological innovation that will function like an “orchestra” blending many innovation initiatives into the operating environments of insurers and the economy at large.
This will contrast, he said, with the waning age of innovative “soloists,” like the creators of Amazon, Facebook, and other transformative services.
According to Mang, the idea that tech startups are disrupting the industry by bringing radically new ideas to insurance were found to be false or misleading by Aon’s “crack team of fact-checkers” who review articles and presentations for assertions about trends in insurance.
Many of the “new” ideas promoted by startups, while updated, aren’t necessarily all that new, he said.
“We are the original predictive analytics industry,” he said. “That’s what underwriting and pricing are about. We are the original peer-to-peer industry. That’s what risk pooling is all about. That is at the core of insurance.”
Mang added: “When I hear trust is the new currency, insurance is the original trust industry. At its core that what insurance is. It’s a promise to pay.”
However, Aon researchers did find it to be “largely true,” that insurers have been slow to respond to changes, Mang said.
“We may be able to respond a bit quicker, but there are reasons for this [caution],” Mang said. “Chasing every shiny object in a hyped-up time like this is a danger. There is a careful balance between being aggressive and responsive, and doing so in a deliberative way.
“I keep hearing about ‘fast fail,'” he continued. “How much tolerance are we going to have for failing fast? That’s not the business we’re in.”
As it is, Mang finds the insurance industry constructively engaged in addressing three principal forces he sees as shaping the way risk will be defined and transferred going forward:
- The pervasive gathering of data on individuals’ decisions;
- The development of online virtual communities and networked commerce; and
- The ability of individuals to use technology to control how they use their time.
Online networks allow people to connect for both personal interaction and exchanges of value, Mang noted. The effect is more pronounced with the slow but steady shift from a “W2 economy” of regular payroll employment to a growing sector of “1099” workers operating as independent contractors, often from home.
As a result, “the nature of commerce will evolve, the nature of risk will evolve,” he said. “We must become much more comfortable with these communities and have products and services for them, particularly policies that are hybrids between standard personal and commercial policies.”
Citing “binge-watching” of television shows as an example, Mang said people today expect to be able to “manipulate time” as freely as possible from externally imposed schedules.
To address these and other trends, Mang sees a strong and considered effort by leading insurers to invest in innovation.
“We have been tracking the development by many companies of the global lab,” he said. “If not a formal lab, companies have been setting up semi-autonomous teams to engage with startups and develop prototypes and pilot projects.”
He added that “with the number of digital labs that are co-development hubs with other organizations, and the number of consortia being developed in this industry; the pace [of innovation] is increasing.
“This trend has accelerated,” he said, “so we aren’t standing still.”