Insurance Technology: the UK can dominate, but needs to move quickly
by Bundeep Singh Rangar
In 1691, the five-year-old Lloyd’s Coffee House moved to Lombard Street in the City of London. In its new premises, it installed a pulpit from which maritime auction prices were proclaimed to the sailors, merchants and ship-owners below. From that podium, the modern worldwide insurance industry was born. Ships and cargo were insured and legal structures were created. The influence of a pulpit in London was felt the world over.
There is a lesson for financial services, and for the United Kingdom here. As we look to a potential post-Brexit world, Britain needs to decide what its role will be on the international stage. The UK insurance market is the fourth largest in the world, trumped only by the US, Japan and China.
And when it comes to insurtech – those new tech-enabled businesses seeking to innovate and disrupt traditional insurance processes and models – the UK is second only to the US. In fact, £218m was invested in UK insurance start-ups in the first half of 2017, according Accenture’s analysis of data from CB Insights. With the country in need of proactive, export-led strategies during and after Brexit, it seems plain that insurance, including its innovators, should be a key area of focus.
The challenge is whether the UK can step up and lead, rather than simply allow its best practices to be copied. In the emerging markets of Eastern Europe, the Middle East, Asia and Latin America, insurance penetration rates lag developed economies. Global average penetration rates, measured as gross written premiums as a percentage of GDP, are 3.5 percent for life insurance, and 2.8 percent for general insurance, according to EY. Compare that with Britain’s 10 percent insurance penetration rate, and that leaves a lot of room for growth.
This is not new territory for our financial services firms. In 2010, Experian became the first foreign licensed credit bureau to go live in India, and the agency has informed legislation and regulation of credit rating in the country ever since. Today, Britain’s insurtech know-how is already ready to ship in premium finance – the area my company, PremFina, specialises in. The practice of lending to an insurer on behalf of a person or company to cover the costs of a premium exists in Australia, Canada and the US because UK models have been replicated there. But outside of the English-speaking world, it is virtually non-existent.
India provides a good example. The adoption of home insurance, including household content insurance, is extremely low at 0.07 percent, according to India’s Bajaj Allianz General Insurance. Yet if you look at where the highest concentration of gold is in the world, it is in India – mostly in private homes. Indian households hold about 24,000 tonnes of gold – worth nearly $1 trillion – according to the World Gold Council (WGC). Jewellery and coins are not insured, however, because the cost of insuring is so high and complicated. But technology is allowing firms like ours to break down the costs of buying insurance into monthly instalments in ways unlike before, which suddenly makes insuring feasible.
It’s the same story for new car buyers in China, where imported cars are subject to a minimum 25 percent import duty, making insurance costly. Or SME owners in Poland where entrepreneurs resort to financing a fifth of their investment requirements via bank loans rather than use such loans for working capital, according to Polityka Insight.
What about regulation, to take another example? When Brexit happens, it will be imperative that Britain keeps its lead in fintech. It is the lighter-touch regime and innovation that will work in our favour here. For example, the UK could create the first safe regulatory environment for blockchain and cryptocurrencies – a holy grail for policymakers and business. The Financial Conduct Authority’s (FCA) Regulatory Sandbox, launched in 2015 and now on its third cohort, has already helped 39 start-ups test their products and services. Just last month, its alumnus Luno raised a $9m series B round. The bitcoin wallet and exchange firm will use the funding to expand across Europe. The UK’s potential for becoming the leading light in well-regulated, back office blockchain-based insurance, for instance, is vast.
The industry is already hard at work. Two months ago, Berkshire Hathaway firm GenRe partnered with London startup iXledger, which has built a peer-to-peer marketplace on the blockchain enabling insurers, brokers and reinsurers to trade products directly. Two year-old firm Everledger tracks diamonds on the blockchain, reducing the risk for banks and insurers. Then there are London success stories like Bought By Many and Guevara, which enables people to club together and use group power to negotiate cheaper insurance.
Of course, Brexit brings risk. There is the risk that we lose the ability to passport financial licences, that the regulatory regime becomes more stringent, not less. Moreover, an export model’s success relies on the ability to have multiple nationalities based in your home office. An inherent contradiction of Brexit is opening up to the world while restricting the free movement of people. The government must consider a future based on the free movement of labour. It must enable a regulatory regime that is startup friendly, and mitigates oligopolies – like the ones you see in insurance.
Brexit makes it necessary for the UK to become the global linchpin of insurance technology. Sitting back while the rest of the world imitates the country’s strengths won’t cut it. It is time Britain returned to the pulpit, and sold to the world.
You can also find the article here: http://www.telegraph.co.uk/business/2017/10/19/britain-needs-insure-against-post-brexit-slump/