Like many legacy markets poised for change, the insurance industry has already seen its first wave of innovation.
Similar in many ways to the initial novelty of opening a bank account online, insurtech 1.0 brought a centuries-old product into the digital era by giving customers a way to apply for insurance online. Customer excitement translated into investor excitement, and everybody rode off into the sunset.
Well, not quite. It seems some might have flown a little too close to the sun instead: Focusing on customer experience on the front end leads to rapid growth indeed, but failing to focus on underwriting on the back end can lead to a very large number of claims, very quickly.
That’s because insurance, fundamentally, is about risk. It follows that digital insurance innovation should primarily focus on digital underwriting innovation – in essence, using technology to accurately assess and price risk in real time.
The truly magical (and most misunderstood) fact is that everything else can simply flow from that innovative underwriting foundation: an instant, digital customer experience, sustainable growth unburdened by excessive claims and the ability to embed insurance in other digital journeys, creating better experiences for consumer, partners and insurtechs alike.
By focusing first on growth and then on underwriting, the insurtech 1.0 wave essentially flowed in the wrong direction. But there is plenty of time to reverse the tide – consumers’ enormous appetite for convenient, modern insurance products has only been whet.
Insurtech companies need to keep pace with the demand they have created through sustainable unit economics and wise risk management.
So what does focusing on next-generation underwriting really look like, and how should you build upon it? Here is our five-step playbook for winning in the insurtech 2.0 era.
Realign your business around underwriting excellence
Refocusing on underwriting innovation starts with refocusing your business.
Ask yourself the following questions:
- Do your primary KPIs include ways to measure underwriting outcomes alongside traditional growth metrics?
- Do a majority of your employees work on underwriting directly or indirectly?
- Do your company goals include explicit underwriting goals?
- Can all your employees articulate how / why underwriting is a differentiator at your company?
If you’ve answered no to one or more questions, it might be worth rethinking your goals, metrics and organizational structure.
Prove your models
Nobody likes to qualify growth, but in insurtech, smart growth is the name of the game. Resist the urge to rapidly scale acquisition before you’ve built confidence in your underwriting engine. But how do you do that?