This week is European InsurTech Week, bringing together over 1,000 senior decision-makers from leading insurance companies to discuss the critical issues affecting the industry and the future of insurance.
No doubt legacy players are on the hunt to find the next insurtech start-up to invest in that will be able to ‘transform their organisation’ for the better. But is this truly the right strategy for successful digital transformation? Tony Tarquini, Director of Insurance, EMEA at Pegasystems comments:
“Insurtechs bring a lot of fresh thinking to the industry and put pressure on traditional players to innovate, which is important and a very good thing. However, there is no getting away from the billions that have been squandered on failed insurtech start-ups that could have been used to solve many of existing insurers’ biggest business technology problems, namely how to digitally transform your business when it is laden with legacy IT issues.
A January 2020 report from Willis Towers Watson estimated that total global funding commitments to insurtechs for 2019 reached $6.37bn. However, the same report indicated around 184 funded insurtechs shuttered shop in the past three years. That’s a lot of money down the drain.
“The insurance industry and the capital funders targeting it seem to be absolutely fixated on piling money into insurtech start-ups, many of which fail. This begs the question, ‘if a major percentage of what you’re investing in is not adding value, what’s the point?’ $6bn could buy a lot of legacy replacement, so it’s obvious that instead insurance companies should be focusing on established, proven technologies that would solve – or go a long way to solving – their legacy IT problems.
I don’t mean just be replacing legacy IT with like for like modern IT code that will soon become a legacy itself but actually getting rid of legacy altogether with no-code, low-code solutions. These platforms would help traditional insurers become the agile insurance equivalent of Google or Amazon, allowing them the freedom to tackle the innovation challenge aggressively.
“Right now, there are different criteria for budgeting money to insurtechs than to insurers’ internal IT teams. Instead, there should be a consistent approach for how money is invested. Investors should apply the same rigorous thinking to the insurtech community that they do to their internal spend, or free up the internal spend and allocate resources the same way they do speculatively on insurtechs. If there was consistency on how money was spent, insurers would have significantly fewer problems, better IT and could challenge the world of innovation.”
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