InsurTech LIVE 2023: When things go wrong in insurtech
On the back of InsurTech LIVE, our virtual show connecting the world of insurtech, we look back on a keynote presentation by leading insurer Marsh McLennan on where things go wrong for insurtechs.
Leading the presentation were Marsh McLennan’s Digital Asset Leader for UK FINPRO, Rupert Poland, and Senior Vice President for FINPRO, Alex Phillips.
For Phillips, who has worked in insurance for over 20 years, the insurance industry is in need of a “shake-up” – which is why he is all for supporting insurtechs, protecting emerging companies and helping them grow in the right ways.
He says: “At Marsh, we deal with a lot of insurance companies. The data we receive from these firms gives us great insights for insurtechs. One thing we notice is that 41% of claims an insurance company will receive are directly from the customer, but just under 17% are from regulators.”
Insurtech: Where things go wrong
Meeting regulatory requirements can be particularly challenging for fast-paced, rapidly scaling insurtechs, as Poland explains: “There are five areas to consider where the risks might be slightly different from insurtechs compared to the incumbent insurers.
“One of these areas is reliance on third-party risk. We live in an interconnected world and everyone has to rely on third parties to varying degrees and insurtechs and incumbent insurers are no different.
“We do see the risk manifest itself slightly differently with insurtechs compared to the longstanding incumbent players. Typically an insurtech, especially when they're starting off, will partner with an insurer who will be providing the capacity for the insurtech’s products.
“This is a great way to quickly gain market traction and reduce some of the setup costs. It works well for insurtechs because a lot of them operate with commoditised products where there is standardised pricing.”
Poland continues: “But what happens if there's an algorithmic error and the incumbent and insurtech accidentally stray from this pricing model? You can incur liability, but also more importantly, you might tarnish the partnership with your insurance provider and not be able to provide services going forward.
“Today, distribution is obviously changing in the insurance market in spite of the protestations of some of the old guard. Pen, paper, and stamps are probably not going to return in insurtechs or the forefront of this innovation in the way they distribute products.
“And a great way that they're doing this is via third parties. But an issue with this is that there is an element of loss of control where you're relying on the third party, for example, if an airline provider's description of the initial text product doesn't quite match up to the product itself.
“So, there could be a huge reputational issue here and potentially some legal costs, investigations, fines and penalties.”
For the full keynote with Poland and Phillips, you can click on the video link above.
And, if you’re looking for more InsurTech LIVE content, you can find it on our website as more continues to roll out over the coming days.
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