An InsurTech Radar report from consulting firm Oliver Wyman and InsurTech investor Policen Direkt argues that current start-up activities are not yet exploiting all possible innovation opportunities.

The report titled, “InsurTech Caught on the Radar, Hype or The Next Frontier?”  examines start-up business models across the industry value chain and determines likely winners in each category –  that are either:

  • InsurTechs
  • established (re)insurance players
  • pure tech players
  • or attackers from adjacent areas

The report said findings across the industry value chain (proposition, distribution and operations) include:

Proposition: The proposition segment comprises companies developing insurance based products and services.

The report said it is the smallest and most troubled of the three segments because there is the largest mismatch between the level of InsurTech activity and their chances of success.

On the other hand, it also has attractive pockets with little activity today, presenting untapped investment opportunities.

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For example, companies that are positioned as risk partners are likely to attract interest from established insurers.

The report said InsurTech companies focused on new digital risks (cyber insurance or insurance for digitally enabled businesses) or companies promising to “deliver more than only insurance coverage” face strong competition from established insurers.

Distribution: The report notes that the idea of innovating the insurance sales process has attracted the highest number of start-ups around the globe.

However, the report says the distribution segment also suffers from an activity/attractiveness mismatch in some areas.

In particular, it says B2C-online Brokers face especially strong competition and have little opportunity for differentiation.

According to Oliver Wyman and InsurTech investor Policen Direkt It is evident that not all B2C-online brokers will survive.

However, it says there are also promising business model categories for start-ups.

These include corporate platforms companies designed to sell insurance products through large HR functions and Financial Partners, InsurTechs focused on personal finance offerings.

Operations: According to the report, the operations segment, which focuses on enabling and running insurance businesses, has the highest consistency between activity level and chances of success.

The report notes there is a lot of InsurTech activity in the Americas, followed by EMEA. Operations are also the segment where InsurTechs are most likely to dominate.

It says claims continue to be an attractive business model category for InsurTechs combining a high market potential with high chances of success.

Underwriting is attractive as well – but there is strong competition from traditional reinsurers here.

Conventional e-commerce thinking

Nikolai Dordrechter, managing director of InsurTech investor Policen Direkt and co-author of the report, said: “A lot of the InsurTech investment today seems to be driven by conventional e-commerce thinking applied to insurance.

“Some areas are overcrowded already and will see a shake-out. But there are also some surprising white spaces offering great opportunities for entrepreneurs and investors.”

Dordrechter added: “Even if InsurTechs win a specific category that does not necessarily mean that established insurers go out of business and become obsolete. Additionally, the majority of InsurTechs focuses on collaboration with the established insurance industry.

Few start-ups have positioned themselves as direct attackers.”

Dietmar Kottmann, Oliver Wyman partner and co-author of the report, commented:  “The first wave of InsurTechs brought forward a lot of activity, but little real disruption.

“There will be a second wave of InsurTechs which are savvier, more creative and more ambitious, with the potential to truly change the way insurers cover risk. The question is how will the insurance industry respond?”