Digital Bar Quarterly: Are insurtechs really coming to eat insurers’ Christmas lunch – or are the tables turning?

The insurance industry has had a lot to deal with over the past 18 months. The dial on regulatory change has been well and truly turned up to 11 this year for personal lines players with fair-pricing changes to prepare for in 2022. A number of high-profile mergers and acquisition activities have taken the focus for other insurers away from digital transformation and to add to all of that a coming up for two-year pandemic has meant operations teams have been working overtime to ensure customers are not materially impacted by overnight changes to call-centre teams.

Last year, the 2020 Digital Bar data surveyed in the region of 70 brands, adding bancassurers, brokers and retail partners to the insurer brands. 2021 has seen the addition of over 150 new brands across six new products (pet, travel, renters, gadget, short-term car and cycle insurance). These new products have also seen the introduction of a number of insurtechs to the league tables and looking at the top three brands across all eight products shows that insurtechs are certainly making waves in their ability to launch Digital propositions.

Insurtech Locket have been the big stand-out this year, taking the top spot in the overall home Insurance rankings. Locket’s overall digital proposition is in the same bracket as the leading insurance brands, but its score has been boosted by its use of technology and data to benefit the customer.

Pedal Cover (backed by UKI/NIG) also entered the home insurance rankings leading on bike cover, alongside a traditional 12-month home insurance policy. Over in the car insurance rankings, both Hedgehog (underwritten by Mulsanne) and Marshmallow (previously underwritten by Mulsanne, but now a full-stack insurer) entered high up the rankings.  Other than these four, the remaining 90% of annual policy products in Digital Bar is made up of well-established brands (insurers, banks, retailers). Why is this and of those insurtechs entering the established home and car insurance market, what is the impact they are having?

Let’s first delve into car vs short-term car. The overall rankings below show that established insurers offering a traditional 12-month policy are able to service more journeys digitally than the group of insurtechs. A surprise perhaps? While renewals is perhaps not a fair head-to-head comparison, there are marked differences with claims and mid-term adjustments. This will all be about frequency of events for claims and MTAs with short-term policies and, therefore, it is understandable that it may not have been invested in by a lot of insurtechs.

Comparing just the top five for car and short-term car insurers shows the gap is not quite as wide as the stats above make out.  By Miles (number one in short-term car) and Axa ( number one in car) are level pegging on overall score. Looking at the overall top five’s shows that it’s a tight pack for car (just 5% difference in the top five), whereas By Miles is the clear leader in short-term Car with fifth placed Marmalade nearly 20% behind its score.

Next up, renters vs a 12-month buildings and contents policy. A similar product for product comparison tells a different story with overall digital scores marginally higher for renters than a 12-month policy.

Incumbent insurers make up half of the brands surveyed in this product category, so it’s not a straightforward insurtech vs insurer comparison between home and renters products.

The general narrative over the past five years has been that insurtechs are offering more in the way of digital propositions and insurers are struggling to keep up. The Digital Bar stats would suggest otherwise for traditional home and motor brands.

Proposition is one thing, but let’s look at size of the market and see if insurtechs are really coming to eat insurers’ Christmas lunch. The overall market for private motor policies was nearly £14bn in 2021 and buildings and contents insurance combined has a market size of £5.1bn. The Admiral brands alone (Admiral, Bell, Diamond, Elephant, Gladiator) make up approximately 16% of the car insurance market.

While it can be difficult to put an accurate figure on the size of the market for usage-based-insurance, it has typically been around 5% of the total UK motor book of business. It’s a growing market where flexibility is as important as price for attracting the types of customers looking for these policies.

Getting a foothold early on in an establishing market is where the likes of Cuvva and By Miles, as well as fast follower LV launching Flow, have been hugely successful. By Miles reported a 75% growth during the early months of the pandemic in 2020 as customers moved away from traditional 12-month policies.

The private motor market hit saturation point many years ago and has entirely been about price for 20 plus years, rather than proposition with vast marketing budgets needed to compete for customers that start-ups just can’t afford, hence why we see more of them focus on innovative propositions.

Given that insurers have largely held firm in the face of insurtechs for the dominant markets in annual policies, what would happen if the tables were turned and insurers started to come after the insurtechs’ sprouts?

Sponsored