Digitizing Insurance Beating Silicon Valley to the Punch

The digital revolution of the $4 trillion insurance industry is finally gathering pace – yet Silicon Valley has still not taken an interest. That could give Germany’s traditional insurance titans a chance to safeguard their turf before it’s too late.
Big changes ahead on the insurance market.


Oliver Bäte is worried. Earlier this year, the chief executive of Allianz, one of the world’s largest insurers, warned against giving technology firms a free ride into the insurance business.

Mr. Bäte said he's ready for the fight, but it has to be on equal terms. “We don’t find it ideal that some companies can simply access customer data and start new business ventures with it,” he said in an interview with the German magazine Der Spiegel. “All services must play by the same rules.”

He didn’t name names, but Mr. Bäte’s anger was directed at some of the world's biggest technology firms and Internet startups that, if left unchallenged, could seriously shake up the $4-trillion (€3.7-trillion) global insurance industry. Names like Google, Apple, Amazon and Facebook.

Apple as an insurance provider? Maybe i-Insurance? The very thought strikes fear into the hearts of an industry that is arriving very late to the digital game.

“They’re still several years behind banking, and banking is generally behind compared to other industries,” said Paul Morgenthaler, who works for a venture capital fund, CommerzVentures, a subsidiary of Commerzbank.

What insurance executives have realized is that they are really behind the curve in technology adoption. Paul Morgenthaler, CommerzVentures

It’s a danger that insurance managers are only just starting to wake up to. According to a 2015 survey by the consulting firm PwC, insurance executives are more afraid than managers in any other industry of how digital technology might affect their business: 73 percent of those surveyed said they “feel threatened by technological disruption.”

“What insurance executives have realized is that they are really behind the curve in technology adoption,” said Mr. Morgenthaler, who authored a study released this week on the prospects of technology reinventing the insurance industry. “They have realized that technology will impact their industry a lot, but on the other hand they don’t feel prepared for the challenge at this point.”

Luckily for them, the digital revolution is still in its infancy when it comes to insurance. Major technology firms such as Google have yet to seriously get into the game. For the moment, at least, they're focusing on "sexy" projects such as self-driving cars instead of the grayer world of insurance, said Mr. Morgenthaler.

While software firms have upended a whole range of industries in the past few years, Mr. Morgenthaler estimates that just 12 percent of all venture capital invested in financial technology, or fintechs, has gone to insurance startups. CommerzVentures itself invested in its first digital insurance startup only this year, a German company called GetSafe that has built an insurance comparison app for smartphones.

When it comes to selling insurance, much of the business is still run the old-fashioned way, by brokers sitting in bricks-and-mortar businesses, maybe through a website, but hardly the kind of artificial-intelligence stuff that has been changing the face of other industries.

But big firms know the writing is on the wall: Insurance is primed for an overhaul. It's already started in areas such as health insurance, where smart watches like FitBit, which monitor activity, are encouraging insurance firms to think about adjusting their premiums based on customers' lifestyles.

Jesse McWaters, who leads a project at the World Economic Forum looking at fintech potential, said insurers have a reason to be worried: Every element of their business, from the way insurance is distributed to how risks are underwritten, could be upended by new software changes.

“From a business perspective, the insurers face a serious set of challenges. They face risks at every point in their value chain,” Mr. McWaters told Handelsblatt Global Edition.

As a result, Allianz, re-insurer Munich Re and Axa, the French insurance giant, have all launched venture capital firms in the past year to invest in promising startups.


Unloved Insurtechs-01


Thibaut Loilier, an analyst at Axa Labs, which runs a series of innovation labs to develop promising startups, said interest in so-called “insurtechs” has started to grow rapidly since the start of this year. In a blog post this week, he pointed to anecdotal indicators such as a recent rise in Google searches for “insurtech”, but also to more fundamental changes. These include the rising number of insurance-related startups on Angel List, a U.S. website that brings together budding startups and angel investors.

Mr. Lolier says that the biggest change this year has been an expansion into areas like car and home insurance. The potential is tremendous: Software integrated into cars, for example, could monitor drivers and encourage safer driving habits.

Peter Evans, who covers insurance for the consultancy Deloitte in London, also points to life insurance, where so-called “robo-advisors” might help the average pensioner get better financial information on their insurance portfolio.

Mr. Morgenthaler said there’s no reason why investment in insurance startups shouldn’t be on a par with investments in other financial areas in the coming years.

The good news for traditional insurance agents is that technology companies haven’t seen the potential yet. Google and Facebook simply have other priorities at the moment. Some tentative steps have also failed – Google last month said it was shutting down a comparison website for insurance, credit cards and mortgages. Mr. McWaters suggested Google’s initial failure shows technology firms won't necessarily have "an easy road" to success in the new sector.

Germany and Europe may also be better placed to fend off competition from technology firms than the United States. Ironically, it may be the size of the U.S. market and the money that has been plunged into startups that puts larger U.S. insurers at a disadvantage.

The wealth of venture capital in the United States means many insurtech startups have the financial backing to strike out on their own, Mr. Morgenthaler said. U.S. companies such as Oscar, a New York-based digital health insurer, are setting up their own broker businesses – challenging traditional insurers on their home turf.

By contrast, many German financial technologies, unable to raise the sums seen in the United States, are focusing on small-but-significant details such as how to improve insurance distribution. Germany, together with Britain, has been among the pioneers in building comparison websites for insurance, said Mr. Morgenthaler.

Focusing on things such as distribution could allow both sides the chance to work together, rather than to cannibalize each other’s business. It’s an opportunity that insurance giants need to grab while they can.


Christopher Cermak is an editor with Handelsblatt Global Edition in Berlin, focusing on finance and economics. To contact the author: [email protected]