Getting digitalization right—how to deal with InsurTechs in insurance business

Mr. Essing, what mistakes do insurance companies make when it comes to digitalization?
Right now, the biggest mistake is to believe that the future of insurance depends entirely on digitalization and innovation from InsurTech companies. In some areas it makes sense to think digitally, for example when it comes to automating numerous standard processes—from operations and product development to sales. However, this enormous faith in digitalization is counterproductive when insurers believe that the supposedly perfect ideas of various InsurTech founders are the only way forward. There are many start-up founders who have appeared in recent years with big egos and claiming: “Let me explain to you how insurance will work tomorrow before you and your business are left behind.” Five years ago, at our DKM digitalization panel, some people told me that by 2020, insurers as we know them would no longer exist.

2020 is now...
Exactly, and when I talk to the same founders today, I get the feeling that many have now come back down to earth and are happy about any cooperation with insurers. Many of the ideas that InsurTech companies present are very exciting, but they often address niches. Many InsurTech companies have had to realize that, despite good starting points, they have not succeeded in gaining access to customers. This is where established insurers benefit from their strong customer base, which they have built up over decades. 

How should established insurers approach working with an InsurTech company?
The first thing to ask yourself is what customer profiles will look like ten years from now. What are the customers’ expectations? Which customer segments should I serve at all? And how do customers expect to be addressed? You need to have a clear picture of that. Then you look at what the organization needs to do to keep these customers engaged in the future. In general, this will result in clear instructions for how to proceed and an idea of the requirements to be met. This approach prevents uncontrolled time spent on trying to deal with every digital idea. Which areas should be digitalized and in what way is determined by the customers’ needs alone. And this also allows you to recognize which InsurTech companies actually create real value for your own company. 

How would you judge the current level of digitalization within the insurance sector?
We recently published the Insurance Pulse Check as a study to get a clear idea of how companies are doing. We concluded that there is considerable potential for further digitalization within the industry. The cooperation with or acquisition of InsurTech companies has not yet led to the desired results in many cases. Again and again, I see insurance companies buying start-ups, only to find out: they don’t really fit in with us. And why is that? Because the insurance company didn’t deal with the simple question of what their customers want.