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‘AWS moments’: The overlooked disruptive force in commercial and specialty insurance

Tomorrow we are publishing a report, sponsored by the Lloyd’s Market Association (LMA) and supported by InsTech London, entitled ‘InsurTech-led Change in the Lloyd’s Market: A Primer and Strategic Guiderails for Managing Agents’.

Sign up to our mailing list to receive it in your inbox.

The report sets out

  • how InsurTech is already impacting the corporate & speciality market
  • why both insurance and non-insurance drivers (e.g. 3D printing) are likely to accelerate change
  • five big InsurTech-led trends that affect insurers
  • how management teams should respond

We finish by profiling 15 InsurTechs which we feel are likely to have an impact in this space.

One important point that we make in the report is that we do not consider InsurTech as distinct from other trends in the industry and prefer to see it as one of several facilitators of technology-led change. InsurTech is a tool that helps insurers and brokers enhance and execute their strategies.

 

We spent the summer thinking hard about the corporate and specialty market and whether it was likely to experience an ‘Uber moment’ – the simplistic metaphor that was coined by financial services executives 3-4 years ago to refer to the ‘disruption’ that could be caused in ‘legacy’ industries by aggressive, tech-led entrants.

Many argue that there are complexities in the market that isolate them from material InsurTech-led change: there can be no ‘Uber moment’.

The more we thought about the ‘Uber moment’, the more we realised that it was necessary to define the term further to capture the nuance of change in the insurance industry. We decided to use the ‘Uber moment’ to refer to the phenomenon of a tech-led company gaining a monopolistic or oligopolistic position in a market by delivering and aggressively growing a new customer proposition. In other words, to create an ‘Uber moment’ a company must change the way products are accessed and consumed in a market.

In the report, we conclude that there could be an ‘Uber moment’ in the corporate and specialty markets. We provide some possible lead indicators, for example:

  • Trends in SME distribution which could make digital accounting platforms the ‘gatekeepers’ to millions of customers for specialty products such as invoice insurance and trade credit
  • New propositions developed by managing agents, for example ‘predict and prevent’ cyber propositions or work with industry to enable new technologies
  • New socio-technological trends (i.e. technology trends that are independent of insurance) such as 3D printing which force the industry to radically evolve its proposition

However, we also concluded that there does not necessarily need to be an ‘Uber moment’ for material change to occur. Incumbents would also be challenged by a Supplier InsurTech building a proposition that extracts outsized ‘rents’ in certain niches or value chain segments.

We therefore realised that it would be helpful in future to consider another type of radical change: the ‘AWS moment’. AWS refers to Amazon Web Services which facilitates cloud computing. It is invisible to customers but is a dominant player in a global oligopoly of providers.

Having launched in 2006, AWS generated revenues of over $21bn in the year to Q2 2018 and a margin of 27% in Q2 2018. For their shareholders, companies creating ‘AWS moments’ are no less attractive than businesses creating ‘Uber moments’.

Companies creating an ‘AWS moment’ in the insurance industry are likely to focus on narrow segments of the value chain or functions (e.g. pricing, core platforms). They are unlikely to change the structure of the market in and of themselves but they dominate their area, sometimes creating monopolies or oligopolies. These companies are able to extract high ‘rents’ from incumbents who become reliant on their services.

Many would suggest that the catastrophe modelling market is one such oligopoly.

Executives need to consider not only ‘Uber moments’ but also how they ensure that value continues to be accrued in their organisations, and is not paid away to the next generation of technology providers.

As an aside, InsurTech evangelists sometimes forget that there has been at least one genuine ‘Uber moment’ in insurance this millennium – the emergence of price comparison websites (e.g. Confused.com, CompareTheMarket.com) in personal lines. In the UK, these platforms now control around 70% of new business in motor and over 50% in home.

 

‘InsurTech-led Change in the Lloyd’s Market: A Primer and Strategic Guiderails for Managing Agents’ is published tomorrow, 21 September 2018. Sign up to our mailing list to receive the report in your inbox.

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Chris Sandilands

Partner at Oxbow Partners
Chris Sandilands, ACII is a Partner at Oxbow Partners. Chris advises (re)insurers and brokers on a range of strategy topics and M&A. Chris started his career as a D&O underwriter at Munich Re, before joining Oliver Wyman, the consulting firm. You can reach him at csandilands@oxbowpartners.co.uk.

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