Digital disruption used to be seen by insurance industry watchers as an existential threat to the sector. That argument no longer applies. Today, there’s no argument that the insurance industry needs digitalization – and InsurTech innovation specifically – to secure its future.

Across the financial services sector, companies are being re-defined by their clients’ needs. It’s what happened with banks. They were driven to embrace FinTech because of the speed of innovation required, and what their customers were experiencing elsewhere, particularly in the retail sphere. In the same way, insurers (and brokers) are looking to InsurTech for answers.

Actually, the insurance industry doesn’t have a choice, with insurance spend as a percentage of GDP declining over the course of the last two decades. The industry’s share of GDP has declined noticeably, from a high of 7.5% in 2002 to 6.1% in 2017 (source: Swiss Re Sigma Explorer Dataset 2019).

This is happening in part due to an increase in the world’s population and disproportional prosperity growth in emerging markets, creating more consumers who need to protect their property and families. Meanwhile, value is changing in the corporate rankings, where businesses with high value intangible assets, like Google, Alibaba, or Apple have overtaken companies trading in more tangible products.

It all points to a need for risk management and for the insurance industry to drive innovation and its relevance – especially during a period of great change. Arguably, the incumbent market simply should be innovating at a quicker pace to meet the evolving needs of its client base and its stakeholders.

Many clients today have unmet risk transfer needs, related to intellectual property, the gig worker economy, cyber threats, disease pandemic or climate, for example. We as an industry need to acknowledge these differences across traditional and emerging markets, tangible and intangible assets, and deliver a differentiated approach in our increasingly interconnected world.

Meanwhile, the entire sector – brokers and insurers – has been making healthy profits. This combination of an inverted innovation curve and profit pool has proved to be irresistible to InsurTech entrepreneurs.

Incumbents’ fears around digital disruption from InsurTech are misplaced, however. After all, when the FinTech wave hit the banking sector it didn’t knock out the big players like JPMorgan Chase, Bank of America and Citi. They retained their positions because they took the best of innovation and applied it.

In a similar way, the insurance industry can and will adapt to the direction of change in the use of technology enabled platforms. It happened with FinTech and it will happen with InsurTech.

The insurance industry has to incorporate digital distribution and automation in underwriting, the intersection of data science and actuarial science, to design modern underwriting models, and create larger pools of insurable risk in ways that insurers remain profitable covering them.

Common ground with clients

Our clients themselves are looking for innovative solutions and so we have common ground.

New technology in trucks now allows for user-based analysis of driving behavior.  To derive customer benefits from the data, Aon Affinity partnered with CarrierHQ to roll out a new motor insurance program on its mobile-friendly online portal for fleets with 20 or fewer trucks. The offering applies third-party data, real-time driving analytics and a proprietary rating algorithm to score each driver. Premiums are then adjusted monthly for each truck based on the driver scores. To power this behind the scenes, Aon partnered with Instec, a market leader in software for complex commercial insurance, with the ultimate goal to both enhance the customer experience for small fleet trucking, while improving underwriting results for the insurers.

By utilizing our data analytics and insight, we can design technology-enabled platforms for all kinds of business,big and small. It’s why Aon acquired Coverwallet, the leading digital insurance platform for small and medium-sized businesses. 
As Inaki Berenguer, CoverWallet’s CEO and Co-Founder said, “Aon’s shared vision means we can continue pushing the boundaries of innovation into new markets and new products at a greater scale.”

This evolution is unstoppable because innovation through InsurTech benefits both the insurance markets and the underlying consumer.

Even pacesetters like Amazon and Uber continue to be defined by their clients and their appreciation of the transparency and convenience these platforms afford them. This was achieved by Uber integrating payment systems, location technology, drivers and vehicles.

To meet the needs of a changing consumer, ‘traditional’ incumbent businesses – including insurers – need to be client-driven and data centric to embrace innovation and better network amongst themselves.

But crucially, everyone needs to stay safe in a dynamic environment heightened by cyber risk, global pandemics and climate change. It’s another part of the inverted innovation curve dilemma that InsurTech is helping resolve to the benefit of both insurers and insureds.

About the Author

John G. Bruno serves as Aon’s Chief Operating Officer as well as Chief Executive Officer of Aon’s Data & Analytic Services Solution Line, which includes the firm’s technology-enabled Affinity and Human Capital Solutions businesses. Bruno joined Aon in September 2014 and has served in several leadership positions with increasing responsibility including Executive Vice President of Enterprise Innovation & Chief Information Officer and Chief Operations Officer & head of Aon Business Services.

Prior to joining Aon, Bruno was Executive Vice President, Industry & Field Operations and Corporate Development for NCR Corporation, where he led all of NCR’s lines of business inclusive of financial services, retail, hospitality, travel, telecom and technology, interactive printer solutions and small business.

Throughout his 30-year career he has held senior business and technology leadership positions with increasing responsibilities with Fortune 500 companies including United Parcel Service, Cisco Systems, Merrill Lynch and Goldman Sachs. Bruno currently serves on the Board of Directors for Global Payments (NYSE: GPN).