We are used to talking about disruptions as a force on the global insurance scene – or even as a way to cover billions of people in developing countries who remain uninsured.
Here, however, we turn the telescope. around, to instead look at what insurance disruptions mean for a medium-sized national market – in this case Ireland, which can be compared with its domestic premiums to markets such as Belgium, Sweden and Austria:
Source: Solvency and financial condition reports 2019
Have insurance disruptions reached Irish shores, or are traditional barriers to entry protected against change? Do Irish players play defense or attack? And how do they best shape their innovation efforts?
We answer these questions in today's post, as well as in our attached report: Irish Insurance 2021 – Set the Disruption Agenda, developed with support from Insurance Ireland. Ultimately, we believe that Irish insurance companies have everything left to play for, and that their experience and prospects can serve as a litmus test for similar markets both in Europe and beyond.
The high-hanging fruit has just become lower
Traditionally, medium-sized national markets such as Ireland have been harder nuts to conceive of possible disruptors
They do not offer the mature scale of the United States or the virgin virgin opportunities which means that business in general must be won by entrenched competitors. At the same time, they require costly product localization and adaptation, for example in the form of a physical sales force or historical data sets that cover customer behavior and claims trends, as well as compliance with a new set of rules.
However, these obstacles – technology, distribution and regulation – have fallen sharply in recent years, which has changed the disruptive calculation.
It is becoming increasingly easier to increase an insurance business. Much of the value chain can be replicated with the help of platforms, outsourcing and cloud technology. In addition, digital distribution means having a presence on the street no longer means table bets.
This evolution from large front-loading costs to as-a-service approaches – far from unique to insurance – enables innovators to dip their toes into smaller markets in a way they could not before. And at least within the European Union, regular convergence enables greater economies of scale for compliance costs, with disruptions that could unite several smaller territories with permits.
Insurtech carriers wanting to break into markets such as Ireland face lower barriers to entry than ever before. Take, for example, Lemonade, which was launched in Germany in 2019 with a cloud-based business model, digital distribution and the right to sell throughout the EU. But just because barriers are lower does not make them low, as our broader Insurtech trends show.
Boiling the frog
Despite massive valuations, Insurtech carriers are a thin part of the total Insurtech sector – only 41 globally, according to Accentures Insurtech Watchtower . In addition, they seem years away from the kind of scale that their current competitors enjoy. Lemonade, despite all its European ambitions, is still sold only in Germany, France and the Netherlands.
Source: Accenture Research Insurtech Watchtower 2020
This failed start-up insurance company, so far, to sustain the industry is the basis for one of our most important results in the Irish market: disruption, according to those on the ground, is modest. However, this lack of obvious challengers must not weaken the established masters in a false sense of security. There are various less obvious ways that disturbances can still get them in balance.
A possible future sees start-up insurance companies cracking larger markets and then transferring the successful model to smaller ones, inoculating themselves with a market presence rather than nurturing one. Another possible future – in fact one that we consider more likely – is what we have called compression disorders.
With 89% of Insurtechs in the "operational enabling" and "digital agency" categories – collaborating with incumbents instead of competing against them – it seems that incumbents may well become the key vectors of disruptive innovation and that digital competition can easily heated among them.
As leading companies seek competitive advantage through step-by-step innovations across the value chain, those who do not follow suit will see their margins slowly compressed – and, along with them, their ability to innovate out of trouble. Like the proverbial frog, the retarded can slowly boil.
Becoming an Innovation-Ready Business
Predicting the future of insurance crashes is an idiotic game, as this is a book with many possible endings. If the last 18 months have shown us anything, it is in fact that traditional stories can be rewritten overnight. But insurers can still increase their ability to respond to the ever-changing story – or even write their own.
The organizations that have flourished under Covid-19 are those that have been able to innovate quickly and rework their products. , services and ways of working. And this innovation readiness that the situation requires will help them win again as we enter the "new normal". Rather, it is about having the right organizational and governance structures in place to support the innovation process from start to finish. We have identified three key areas:
- Innovation Strategy: The majority of large companies control innovation centrally – generally under a Chief Innovation Officer or dedicated innovation committee.
- Innovation talent: companies not only need technicians, they need generalists and portfolio thinkers – to evaluate the business cases that underlie various technical choices.
- Start-up engagement: if disruptions will become a technically controlled hassle between established ones, then better access to start-ups means better tools for your arsenal.
As we show in our report, Irish incumbents do better in some of these areas than others, so there are certainly ways to further increase their readiness to innovate. And now may be just the time to get serious about this, not only for Ireland's insurance companies but also for those in other national markets.
The fact is that today's lack of serious disruption creates a valuable window of opportunity for established worldwide. Without having to fight, they can take a more considered approach to the future protection of their businesses, protect against disruptive threats and even earn the freedom to seize disruptive opportunities themselves.
So far from being a time to sit back, the second half. 2021 is an opportunity for existing judges to move forward, not necessarily by spending big money but by building their preparedness for future innovation – for tougher battles may lie ahead.
For the full story on disruption and innovation in Ireland, read our full Report. To get in touch with or discuss any of these ideas, contact John Morrissey on LinkedIn.
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