In an article for Intelligent ILS, Guernsey Finance Chief Executive Dominic Wheatley examines the technological advancement in the insurance sector and why the old heads embracing the newcomers can bring out the best in both.
Google 'fintech' and you will get nearly 10 million results. Googling 'insuretech' brings up around 136,000. It seems that the techies don't fancy my old industry.
This is hardly surprising bearing in mind the 300-year history of modern insurance and the accumulation of regulations serving to constrain innovation and provide barriers to entry for start-ups. Hardly surprising also, that existing providers hampered by their legacy issues and systems are not churning out disruptive changes.
This point was raised and discussed in a panel session at the 2017 Guernsey Insurance Forum, with the suggestion that, historically, start-ups had not been able to engage and make progress with incumbents with regards to implementing their ideas and technology, but the pressure nowadays to adapt and develop meant that incumbents were more open to interacting with start-ups.
"A good few years ago there was a disconnect between the start-ups and the ability to actually make their new companies and ideas relevant," James Sore of equity investment firm SyndicateRoom said. "When it really takes off is when the incumbents are brought into that process, so they can actually implement the concept.
"The incumbents, the existing providers, are still around for a reason – because they manage risk, but you also have the start-up mentality of 'I can do anything and change the world'. It's about finding the balance between the two."
Of course, there have been developments in the past but transformational changes have been few and far between. Direct Line's telephone-based service in the '80s was new but it was not until online consolidation sites arrived in the noughties that traditional broking and local insurance offices came under real pressure.
This has driven the development of motor insurers such as First Central Group, the Guernsey-based online UK motor specialist. First Central's success over 10 years has come from focusing on maximising the competitive benefits of operating solely online and concentrating on clarity of cover and simplicity of underwriting processes whether via consolidators or its own website.
First Central's ability to use reinsurance from the traditional wholesale market to build capacity into its business model creates the scalability necessary in an insurance start-up, whilst the consolidator platforms provided routes to market to gain valuable market share in its early years of development.
However, at the heart of the business has been a commitment to developing the use of technology in the business to generate efficiency and enhance the customer experience. This commitment continues as their development team in Guernsey focus on how block-chain technology can be utilised in the business and how technology and the use of AI can enhance the claims process.
As with all tech-based businesses, the technology development is never finished.
For some years, motor insurers have offered reduced premiums for safer drivers as measured by on-board monitoring and new data analysis techniques will continue driving more technical pricing models to match risk and premium ever-more accurately. However, while this assists with risk selection, it is hardly disruptive to customers. In general, premium rates are very low for most average purchasers and more accurate pricing is unlikely to help those at the sharp end of risk analysis such as young male drivers.
Similar stories of disruptors collaborating with established players are typical not only in insurance, but across other fintech areas, Aviva's acquisition of another start-up with Guernsey roots, Wealthify – an on-line robotic investment advice specialist – being an example.
It may seem odd that two major successes in the area have come out of a small island such as Guernsey, but there are good reasons for this.
Guernsey's thriving and entrepreneurial finance community brings together major global players and small, independent firms. Big and small working cooperatively is common practice here and the expertise and experience available in the island is formidable.
Our first-class regulation is responsive to new ideas. We were the first to licence the use of blockchains in both fund administration and the administration of insurance linked securities structures. In August, Guernsey-domiciled ILS reinsurance transformer Dom Re IC Limited issued what is believed to be the first notes ever to have been digitised on a private blockchain, with two funds performing a secondary market trade on the 'ILSBlockchain' by the end of the year.
Guernsey has a long history of financial innovation, from the printed bank note, developed by Thomas De La Rue in 1860, to the introduction of the Protected Cell Company in 1997 – a concept imitated around the world that has grown beyond the insurance sector into an alternative application for the structuring of many products.
Guernsey is ready to embrace new ideas and planning for the future must be hardwired into the DNA of insuretech firms. As James Sore put it, ideas can really grow when you combine an incumbent working alongside the start-up environment.
An original version of this article was first published in Intelligent Insurer, January 2018.
For more information about Guernsey's finance industry please visit www.weareguernsey.com.
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