Unexpected partnerships that have formed between major insurance companies and Silicon Valley’s technical innovators have some brokers fearing for their future, as well as that of the industry.
In April, XL Catlin launched XL Innovate, a venture capital initiative that aims to link its own expertise with IT projects that address “innovative approaches, applications and technology-driven enhancements of insurance and risk management.”
While XL Catlin leaders say that the undertaking will lead to more competitive products in specialty lines such as cyber liability and flood risk mitigation, brokers are beginning to question the long-term implications for it and other high-tech applications winning the support of big industry titans.
“Just a few weeks ago, I wrote a blog post about a guy in California who discovered that the funding for insurance disruptors increased by 250% from the year prior,” said Peter DaSilva, president and COO, Cornerstone Insurance Brokers Ltd.
While DaSilva was taken aback by that figure, he felt that it was no cause for alarm – until he learned that global insurance giants could be among insurance start-ups’ top financiers.
“I’m not worried about kids starting up in a garage, because they know nothing about our industry. It’s extremely complex and not nearly as easy as most people think,” he said. “Plus, they can’t hire actuaries to figure out what they should charge - why would an actuary give up a $400,000 job with a big insurance company to work at a start-up?”
Giants such as XL Catlin, on the other hand, can provide access to these risk professionals – a troubling thought for DaSilva.
“Now you’ve got people who are giving them expert advice, and they might be able to build something that can completely disrupt us,” he said.
Admittedly, DaSilva has no predictions for how that will appear. “You can’t know what it’ll look like – it’s the Boogeyman under the bed.” Still, he feels that it could lead to an outcome where the insurance industry resembles the taxi and limousine sector after Uber arrived in Canada.
He also worries that brokers may be particularly vulnerable.
“Brokers will be affected first for sure, because it will start with the front-end business to client applications,” he said. “It won’t be business-to-business and it won’t immediately affect the insurance companies that aren’t involved, but they will eventually be affected too if they don’t adapt.”
DaSilva feels that the best precaution brokers can take is to invest in disruptors and capitalize upon their gains. Essentially playing the game of the industry’s bigwigs.
But for those without such resources, though, it all comes down to adaptation.
Drawing upon the Uber comparison, he says, “I think you have to compete in the same way and offer a similar service – nice cars that can be accessed from a cell phone on an app. You have to be able to compete on the service platform.”
Otherwise, he can only hope that some tech geniuses take pity on him.
“If anyone reads this and wants to call me, I’ll be glad to talk to them,” he said.