The INSURTECH Book

True Business Model Innovation – a Credit-Based Approach

By Tobias Taupitz

Co-Founder and CEO, LAKA

Status Quo

The Financial Services sector is facing an unprecedented level of innovation. Business models are constantly challenged: from banking to payments, and capital markets to lending and saving, culminating in the term FinTech. Numerous challenger brands were established, which forced incumbents to rethink their offerings, to the benefit of consumers.

The insurance sector, however, has successfully avoided deep transformation and seems to be largely driven by corporate needs (capital requirements, pressure on investment yields, large loss events, etc.), rather than the desire to improve the customer proposition.

In the General Insurance space, customers are frustrated with high premiums and cumbersome processes, while insurers are suspicious of overstated or fraudulent claims. It is a vicious cycle.

Thinking about the mechanics behind an insurance contract, the conflict of interest is clear: one additional claim paid reduces the (underwriting) profit of the insurer. Equally, a delayed payment allows the insurer to generate another day, week, or month of investment income. Customers are rarely regarded as a key stakeholder on par with shareholders. Premiums charged during a period are the maximum revenue that an insurer can generate for providing cover for the risk of loss. It is therefore inevitable to manage the underlying parts closely.

To date, claims are still predicted ...