The waves of disruptive technologies that are reshaping how people work, live and play are hitting the global insurance industry. Virtually every area of insurance, from sales and distribution to underwriting and claims, will be transformed by the insurtech innovations that are happening and that will be coming down the road. However, the laws and regulations for insurance in the United States will need to undergo a significant transformation to allow for the full realization of insurtech’s potential.
Clyde & Co’s recent Insurance Growth Report found that insurance carriers are intensely interested in technology as a key source of their future growth. That growth will come through the introduction of new products and operational enhancements, all enabled by digital technologies. Insurtech is a global growth opportunity. Investors in 2016 poured more than USD 1.7 billion into insurtech startups worldwide.
The United States remains an attractive proving ground for innovation. It is a huge marketplace, has a sophisticated consumer base and offers access to enormous pools of venture capital. Not surprisingly, insurtech entrepreneurs from around the world are coming here to launch their ideas. Regulation, however, is a hurdle in insurtech’s path. The insurance laws and regulations were designed to regulate how insurance was marketed, sold, underwritten and administered in the 20th century or even the 19th century. And the U.S. state-based system of regulating insurance creates borders that seem especially artificial for the insurance products and business being redefined by insurtech.
The approach to regulating insurance in the United States will need to evolve rapidly to keep up with insurtech. To their credit, insurance regulators are trying to come up to speed on the technological and business developments and to develop their responses. For instance, the NAIC has formed the Innovation and Technology Task Force to study and consider regulatory approaches for insurtech and related technological issues (such as cyber risks and use of big data). However, change is likely to be slow given the relative complexity of the U.S. system for insurance regulation. In contrast, other jurisdictions including Singapore, the U.K. and Dubai have established or are establishing sandboxes or innovation hubs for insurtech ventures by relaxing some of the rules on traditional insurance entities.
Innovation in any industry is a process of experimentation, analysis and adjustment. Inflexibility in the regulatory environment may hinder the development of insurtech solutions that make insurance more accessible and valuable to individuals as well as businesses. Although the United States will remain an incredibly attractive market for insurtech ventures given its size and sophistication, regulatory hurdles may push innovation to more welcoming regulatory landscapes.
We work with both insurtech startups as well as many of the world’s leading insurance groups on innovation in insurance, and we see enormous potential. Pairing insurers’ vast expertise in mitigating and financing risk with new perspectives from new technology and business approaches brought by newcomers or developed by existing insurers makes this a particularly dynamic time. Regulators must continue to perform their critical role in protecting consumers and overseeing the insurance industry’s financial strength. However, regulatory support of insurtech will be good for consumers and the global insurance marketplace.