The death of innovation

Toby MacLachlan, 30 September 2021

What’s the problem?

Innovation is a good thing, right?

Usually true, but in insurance there’s a large cadre of people who take pride in their inertia. For this reason, in the past decade, there was not much real innovation in insurance. Whilst there has been more in recent years, very few of the big insurers are coming to the party. The UK is one of the more advanced marketplaces in the world, and it’s still pretty backwards by the standards of other industries (e.g. marketing, fashion, even banking is ahead of us). Why is that?

Lack of investment? No – there are billions being pumped into Insurtechs around the world.

Lack of ideas? No – there are huge communities of tech entrepreneurs like the InsurtechUK which foster innovation with great people and great ideas.

The real problem

If you ask anyone involved with insurance which are the slowest dinosaurs in the jungle the answer is: insurers. Even getting an agency (a standard contract to distribute an insurer’s products) takes months. Try to ask them to work with new technology as you’d better be prepared for a long old slog.

So there are lots of insurtech innovators out there, with great tech, great ideas, loads of funding… but nothing to sell!

The big insurers have a monopoly that is perpetuated by the big software houses. Try to set up a new insurer? That takes even longer than it does to set up a new brokerage – you’re talking about years to get approved by the FSA. What tech startup wants to spend years just getting regulated to get going?

What’s the result?

There are a small handful of large insurers, and they only work with a small handful of large software companies. Both have dated technology that prohibits innovation either from the inside or from the outside.

I spoke with one top-10 insurer last month who admitted they wouldn’t know how to integrate a new software house because they hadn’t done it for over 15 years and there was no one left who remembered! It’s not an isolated example.

What about IHP?

IHP (Insurer Hosted Pricing) was supposed to offer the insurers products to the wider market with nice interfaces that didn’t require an enormous amount of technical support or oversight from the insurer. Well, that didn’t work (see also my other blog on why).

What is the solution?

There are two ways this could go:

  1. Insurers could rebuild the APIs (interfaces) of their IHP solutions to make them easily accessible to all insurtechs. This would create amazing distribution possibilities for their products and foster collaboration and innovation and competition.
  2. A new (much bigger and scarier) breed of insurers could emerge from the likes of Amazon, Google, or large VCs. They will have distribution, technological superiority, and won’t have read the rulebook of ‘we don’t work with new companies’.

There are high barriers to entry in insurance but our current stock of insurers cannot continue to stifle innovation and hope the world doesn’t notice. Time is running out.

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