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InsurTechs: customized insurance cover via the smartphone
Not only the banking sector, but also the insurance world is in a state of upheaval – and here, too, it is digitization that brings new competitors into play, paving the ground for innovative products and business models. The parallels between FinTechs and InsurT echs are highly revealing.
New suppliers, new ideas
They call themselves i-surance or GetSafe, versicherix, asuro or AppSichern: InsurTechs, mostly creative startups, who are beginning to digitally rejig the insurance industry, which finds itself in a crisis. The business model of investing customers’ premiums profitably has not been functioning in the sustained low-interest phase prevalent since the global financial crisis. Traditionally widespread and profitable products, such as life insurance policies, are becoming less and less attractive to customers. Internet-based comparison portals force conditions to be adapted to those of the lowest bidder. This results in shrinking margins.
InsurTechs are transforming the market by innovative means of communication, products and distribution channels:
- InsurTechs work in a completely digital and mobile fashion.
- They offer new, perfectly customized and often flexible products.
- They utilize new business models.
- They redefine the point of sale.
As an alternative to conventional insurance products, InsurTechs offer very flexible options – such as temporary upgrades to fully comprehensive insurance, which can be reduced to a basic coverage at a predefined date. The processing is simple thanks to digitization and accommodates a new type of consumer who is socialized in the digital world. As the sales strategy is breaking away from traditional ways of initiating business deals, an additional point of sale is created with every new smartphone. Insurance agents go to the customer, but the customer comes to the InsurTechs.
Neither insurance companies nor brokers
Just as FinTechs are not banks, InsurTechs are not insurance companies, but they are also not pure brokers. They form a new sector in which customers can be allured to new products. The products provided are from conventional insurance companies, but structured according to the ideas of the InsurTechs. InsurTechs are successful with them because they can offer special add-ons, which constitute additional value, and this can even start with digital processing.
InsurTechs buy the services offered by traditional insurance companies. And, as the middlemen, they have a monopoly position in the digital environment and can therefore influence the pricing. If an insurance company is not prepared to provide a larger quantity of certain services at a price set by the InsurTechs, a competitor certainly will.
Ignore – or adapt
Insurance companies like banks are outpaced by new competitors and must adapt to the rapidly changing market situation. However, these large corporate “tankers” can never be as agile as the small insurtech “motor boats” on their hunt for customers. Insurance companies like banks must realize that they can hardly win this competition: before they manage to set up a new unit, other new concepts and products are already available. Only those who integrate innovative forces, i.e. take over or closely cooperate with FinTechs or InsurTechs, will be able to keep pace with the development in the market. It is the nature of the game that smaller partners assume the leadership in the impacted business areas.