Insurance is not a business model, InsurTech could be

insurtech course

By FINTECH Books Contributor, Periklis Thivaios

Despite our newfound excitement, business model disruption is not new in the annals of history. The theoretical father of disruption, Joseph Schumpeter, illustrated how developments in seemingly unrelated industries (such as railways and agriculture) can impact one another. Studying business models outside closed systems thinking is essential and the study of InsurTech proves no exception.

Principally, the traditional insurance business model ! Rather, it’s an aggregation of business models such as underwriting, investment management, risk-pooling, to name a few. This argument is already ‘proven’: InsurTechs do not try to disrupt insurance; instead they target risk pooling (P2P insurers), asset management (robo-advisors), distribution (on demand insurance), not a business model.

Additionally, due to the umbrella nature of the traditional insurance industry, a more mature InsurTech market will support one more business model: the InsurTech aggregator.

In the same way that Amazon is not a product seller anymore but a vendor aggregator, there is scope for InsurTechs to aggregate the offerings of other InsurTech providers, as well as traditional insurers.Lastly, InsurTech business models don’t have to be competing with traditional insurers. Technological innovation can be disruptive (P2P, robo-advisors) but it can also be enabling (technological applications for reserving, data aggregation, customer service etc).

Nor is a lower cost of service alone a good enough differentiator. Low cost and full service airlines demonstrate there is room for business model coexistence. InsurTech firms may focus on the niche, cost conscious market, allowing traditional insurers to serve the less price sensitive, convenience seeking customers.

As Ted Levitt illustrated in his 1960 article “Marketing Myopia”, the appropriate definition and understanding of business models is key to their success. Try to disrupt too much and you will fail. Try to disrupt too little and you will become a niche player and be taken over.

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