The future of insurance, part two

  • Cutting out the middle man: disintermediation is a feature of technological disruption

    Cutting out the middle man: disintermediation is a feature of technological disruption

In the second and final part of his commentary on the future of insurance, Darren Wray, chief executive officer of consultancy Fifth Step Ltd, looks at how the industry landscape may change in the coming years.

All of the discussion so far has been about threats from the outside, be they from start-up and disruptive companies or some of the big tech players, but that is to assume that the existing players, roles and relationships will remain the same or similar and this is, I believe, unlikely.

In the discussions about disintermediation, or cutting out the middle man, brokers have felt themselves to be at risk from the march of technology. I think that it could be some carriers who might be at risk in this area though.

Personally I have drawn this conclusion over the last few years, and having attended many insurtech and fintech start-ups in London and elsewhere, what was surprising to me initially was how many of the larger carriers and larger reinsurers sponsor such events. Several go even further and are providing incubator services ó office space, access to back-office functions, access to mentors and investors/investment ó for these fledgeling companies.

The advantage for such companies is obvious but providing these services, they get an early stage view and access to disruptive businesses and can invest or purchase those businesses, giving them far greater control over the evolution of the future shape of the insurance business.

To some extent this is, of course, a defensive measure. They are executing one of the primary pieces of advice that I would give them, which can be summarised as if you donít become your competition, someone else will.

Another point, which is potentially for the reinsurance companies rather than the existing direct carriers is their ability to use new technology to disintermediate the insurance carrier and to become the insurer.

I accept that such ideas may seem a little far-fetched to some people. However, consider how the reinsurance market has consolidated through various mergers and acquisition deals over the last few years. They have done so through the need to be able to find new ways of becoming more efficient and discovering new approaches for the market; therefore I think it is more far-fetched to assume that things will stay the same.

Prediction number three is that we will see the lines between insurer and reinsurer become more blurred over the next few years and that each will look to use new technology to help them gain market share in each otherís traditional areas of expertise.

What should insurers and reinsurers do?

All of this might sound as if the future is already written but that is certainly not the case. These are my predictions based on my many years of experience of working with insurance and reinsurance companies and reading the signals from the activities that many of the different players are giving through their strategic and tactical actions.

So if the future is open, what can and should insurance companies be doing to help them prepare and take advantage of these changes?

Reduce costs Ė this is perhaps an obvious suggestion, but some of the combined ratios that we have seen in the market are unsustainable even if the future does not include disruptive or well-funded competition.

The most likely areas of improvement are likely to be in the areas of business process optimisation and dare I say, helping some organisations enter the 21st century by assisting them to retire legacy systems. Legacy systems can behave like a sea anchor, slowing or preventing movement and dramatically reducing an organisationís ability to be efficient or innovative.

Become innovative: it sounds like a panacea to all business ills but it certainly shouldnít be regarded so. Innovative companies can, however, change the way that their businesses work. For example, if it hadnít have been for some of the innovative companies of the past, notably Xerox, 3M, Microsoft and many others, the world would likely be a very different place. Innovation doesnít happen on its own; it takes investment, sponsorship and courage to make the changes.

Invent your competition: inventing and becoming your competition ought to be an objective for all companies. When implemented as part of a continuous improvement approach it can ensure that your organisation is always looking for ways to reinvent and improve itself. Looking at your organisation in this way also means that you will better understand your organisationís strengths, weaknesses and what makes you different from your competitors.

Improve data processing and MI: no matter if your business is a well-established company or a more recent entrant to the market, information is critical. Youíll notice that I say that information rather than data is critical. Many organisations have more data than they know how to utilise. The crucial thing about data is making it useful by turning it into information. Many organisations are turning to their IT departments and data scientists to help them understand their data, transforming it from the raw, unrefined product into an information treasure trove that allows them to make data led decisions rather than relying on gut instinct.

Darren Wray is the CEO of Fifth Step Ltd. For more information, visit

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Published Nov 30, 2018 at 8:00 am (Updated Nov 29, 2018 at 11:34 pm)

The future of insurance, part two

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