4 minute read 9 May 2019
Woman brainstorming in front of flow chart on wall

How Australia's insurtech ecosystem is changing

By

Andrew Parton

EY Global Insurance Advisory Partner

Transformation and client leader in insurance. Passionate about helping disadvantaged kids. Wine lover. Fitness fanatic. Father.

4 minute read 9 May 2019

The EY 2019 Australian insurtech ecosystem report shows that insurtechs are helping incumbents develop innovative insurance products and deliver better services.

Our 2018 report found Australian insurtechs are predominantly enablers rather than disruptors of transformation. In 2019 we asked two questions: “Where are insurtechs enabling transformation along the insurance value chain?” and “What’s stopping incumbents from taking advantage of these exciting opportunities?”

Australia’s insurtechs are maturing and growing. They are playing an ever more important role in the future of incumbents, especially in the health and life insurance markets. Focused on supporting product and distribution innovation, pricing and underwriting agility, smarter loss prevention as well as organisational efficiency, insurtechs hold the key to helping incumbents accelerate their transformation to become digital insurers.

Whilst incumbents understand the potential of insurtech innovation, uptake remains inhibited by operational constraints, legacy systems, technological readiness, compliance issues and concerns over customer privacy and security.

Reinforcing the view of last year’s report, the clear majority of insurtechs are focusing their business on enabling incumbents, with relatively fewer attempting to disrupt the industry. More and more active partnerships are springing up between industry incumbents and insurtechs, yet 82% of insurtechs believe incumbents can do more to collaborate and truly drive innovation.

This report looks at what’s inhibiting stronger collaboration and the broadening areas of the incumbent value chain where insurtechs are focusing. It paints a picture of an industry with substantial opportunities to disrupt itself with innovative products, compelling customer experiences and deeper sources of value. However, without considerable effort on both sides, the needed collaboration to achieve these goals will continue to be stymied. Incumbents must proactively remove the barriers to working with insurtechs and insurtechs need to better understand the realities of operating compliantly in Australia’s insurance industry.

Historically, incumbents have used technology defensively. The uplift in collaboration suggests incumbents are starting to embed insurtech innovation in targeted parts of their operations to create value in new ways.

Our findings

  • Growth and evolution The insurtech ecosystem is evolving and growing to meet the demands of a changing insurance landscape. In the last 12 months, the number of insurtechs operating in Australia has grown by 53%.
  • Collaboration increases Our research also found a 75% increase in active partnerships between incumbents and insurtech, driving greater levels of collaboration. Insurtechs have responded by increasing their focus on new business models to innovate customer service right along the value chain.
  • Global ambitions The ecosystem has moved from activation to globalisation. Alongside thriving homegrown insurtechs, an increasing number of overseas insurtechs are strengthening our reputation as a leading hub in the region, with 30% of the 2019 ecosystem having been launched in geographies outside of Australia. At the same time, an increasing number of local entrants are planning to go global from day one.
  • Improved financial stability The market is maturing. In 2018, almost 50% of insurtechs were in pre-revenue phases, compared to 29% in 2019. The investment landscape is also improving, with a third of respondents taking their capital raising beyond the $2m mark, compared with 24% in 2018. But there is still work to be done to ensure that access to capital does not limit the growth of both early-stage start-ups and the wider ecosystem. For almost two-thirds (59%) of insurtechs, more than half of their current capital was contributed by founders.

What do the findings mean for insurtech ecosystem participants?

Incumbents Incumbents have an important opportunity to embrace the insurtech community to deliver innovative solutions across the value chain. Incumbents should look to remove the inhibitors that prevent them from fostering insurtech partnerships and embedding innovation into their digital strategies. Although incumbents are risk adverse and subject to strict regulatory oversight, they need to stay focused on growth and drive innovation by leveraging the insurtech ecosystem.

Insurtechs Recognising the legacy and regulatory challenges incumbents are facing, insurtechs need to be patient and stay focused on enabling business outcomes within the value chain. Insurtechs have an important opportunity to engage industry influencers to help incumbents overcome their business challenges to taking up enabling technologies. To assist this, insurtechs should be transparent about the maturity of their technology and service capabilities to foster trust in their partnerships.

Facilitators and influencers Leaders in government, non-profit organisations and co-working communities, such as insurtech Australia along with advisory professionals, must continue exploring strategic partnerships and connecting incumbents with insurtechs to identify and help establish digital capability. The industry needs a high-impact, incubation environment to support ideation, supported by the right tools, resources and funding mechanisms. For example, we need a space where new insurtech use cases can be rapidly tested at low risk to an incumbent’s core business. 

Summary

The Australian insurtech ecosystem is growing and maturing creating opportunities for incumbents, founders and advocates of the insurtech community to become more agile and innovative. 

About this article

By

Andrew Parton

EY Global Insurance Advisory Partner

Transformation and client leader in insurance. Passionate about helping disadvantaged kids. Wine lover. Fitness fanatic. Father.