Burning questions from InsureTech Connect 2018: 48 hours at the world’s largest insurtech gathering

Every fall, thousands of insurance executives, tech entrepreneurs, and investors gather at InsureTech Connect (ITC) to better understand the digital transformation of the insurance industry. Here’s our perspective on seven questions that were on everyone’s mind this year:

  • Has insurance shed its reputation as the industry of status quo? Not yet, but it is making headway. Across the more than 6,000 attendees representing hundreds of start-ups and dozens of incumbent players, we heard from bold upstarts attempting to disrupt the industry from the outside and 100-plus-year-old incumbents aiming to reinvent their businesses from within. Regardless of the path they are taking, ITC 2018 attendees of all maturities demonstrated a commitment to shedding insurance’s reputation as an old, stodgy industry stuck in the past and to embrace rising customer expectations driven by other industries, such as e-commerce. The scale at which capital and human resources are being deployed to pursue new ideas is amazing, with $1.7 billion in funding in the first six months of 2018 versus $2 billion in all of 2017.
  • Are we witnessing a revolution or an evolution? Despite bold ambition and commitment to innovation and disruption, it was unclear what (if any) examples were on display that demonstrate a massive leap forward for the industry. More common were examples of promising potential but only incremental improvement.
  • Are insurance-carrier IT departments growing more adept at insurtech integration? There has been a significant shift in posture by carrier IT and executive leadership. Previously, insurtech was seen as disruptive to a carrier’s IT roadmap and strategy. Now, carrier IT and executive leadership see insurtech as part of the IT strategy.
  • Will startup proliferation put pressure on insurtech economics? Over 150 insurtechs attended ITC. A few are pursuing truly novel ideas with distinctive approaches and capabilities and are looking to quickly achieve scale. Yet many mature insurtechs are competing to win with a similar value proposition in the same market. If early-stage companies are looking to vie for attention from legacy carriers and brokers, price competition could intensify and may result in a significant thinning of the herd.
  • Will artificial intelligence (AI) and machine learning be competitive differentiators for the long term? Start-ups and incumbents alike are deploying proprietary AI solutions in insurance today, but there is uncertainty if this can be sustained for the long run, given the increasing availability of off-the-shelf AI technologies from large technology providers. As Dan Glaser of Marsh & McLennan reminded everyone, “It was not too long ago that every firm had its own solution for CRM and data centers.” Some suggest that insurance companies could ultimately become consumers of AI and machine learning “packages” from a small set of big companies offering these capabilities.
  • Is the agent here to stay? Despite advancements in technology and increasing digitization, we heard strong assertions that agents will continue to play a role in the purchase journey, though it is likely their role will narrow to focus on supporting the end of the journey versus the entire journey. The delivery methods for agent support will certainly evolve from what they are today. Agents will need to embrace new digital solutions and learn how to participate in emerging technology-driven ecosystems.
  • Should distributors be worried? Many of this year’s exhibiting insurtechs have set the core distribution function in their sights. Distribution is a low-risk target, and we may be rapidly approaching a tipping point. Once one insurtech reaches sufficient scale, it is likely to become the go-to for carriers, and it will gobble up or crowd out competitors.

We are in a phase of incremental innovation. The big ideas—such as image-based underwriting, IoT to reduce claims, and AI-based technologies to improve core carrier processes—are out there, and we are seeing many insurtechs competing for attention from the large and midsize carriers. Which insurtechs will distance themselves from the rest of the pack remains to be seen. But we’re excited to see how insurtech’s favor with investors may translate into more innovation from disruptive tech entrepreneurs and incumbent carriers alike.

Doug McElhaney is an associate partner in McKinsey’s Washington, DC office; Meghan Lodolo is a consultant in the Minneapolis office; and Shannon Varney is an associate partner in the Boston office.