Why insurance innovation is hard
Hint: it's not the data
"The advantage insurtech startups have is they have more data than the incumbents." - Paraphrased (and subtweeted)
Yes, there are some startups with some unique data, like that generated by new kinds of sensors and some of the cyber monitoring.
But carriers, especially those with decades of countrywide experience, have a vast sea of data for huge numbers of policyholders. They also have many, many data scientists, actuaries, and analysts to make it usable. Orders of magnitude more data than even large startups. If it's been measurable for a while, they probably already have it.
Lack of data is not why insurance innovation is hard. It's not why insurtech has not revolutionized the industry (yet?).
Here's what does make improving insurance hard:
🗣 Human factors 🗣
⚠ Large, complex organizations that slow decision making and hinder communication
⚠ Cautious, conservative corporate cultures (a good thing, until it's not)
⚠ An aging distribution workforce (in the IA channel), deeply knowledgeable people retiring, and difficulty recruiting younger people
⚠ A long history of unsuccessful innovation projects without a Silicon Valley-like tolerance for failure
💰 Economic factors 💰
⚠ Large, stable, cash generating renewal books (disruption of any sort is usually cash flow negative)
⚠ Fragmented, highly competitive market with high cost of acquisition (paired with higher loss ratios for newer business), so protecting the renewal book is paramount
⚠ Increasing costs of reinsurance related to global economic conditions and climate change are among the most pressing problems, not well addressed by most innovation
⚠ Easier, more certain levers to pull vs innovation, especially in the difficult insurance markets of the last few years (rate increases, coverage reduction, nonrenewal, etc.)
⚠ Social inflation and litigation financing driving higher claims outcomes; also difficult to address with tech innovation
Insurance people, what did I miss?
#Insurance #Insurtech #InsuranceInnovation