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Clyde & CO
The Future of Insurtech: Partnerships, Legal and Regulatory Change and the Need for Cyber Resilience
Avryl Lattin
Partnerships between insurers and insurtech startups
Incumbent players in the insurance industry have begun to recognize the need to act and make investments that align their value proposition to customers. For many in the industry, insurtechs are no longer viewed as disrupters of transformation – rather incumbents are increasingly looking to insurtechs as enablers, and this shift in thinking is increasing opportunities for active partnerships.
Insurtechs are focused on a number of areas, including supporting product and distribution innovation, facilitating pricing and underwriting agility, assisting in efficient insurance administration and implementing smarter loss prevention and remediation.
To better align the objectives of incumbents and insurtechs, incumbents need to consider developing 'lightweight' master service agreements and balanced non-disclosure agreements that do not impose onerous obligations and prevent a partnership from flourishing at the outset.
By removing pre-partnership constraints, incumbents and insurtechs can spend time focusing on ensuring the viability of the relationship, which can be fostered by having clearly defined paths for insurtechs. For example, incumbents need to determine how the relationship will evolve. The emphasis is more along the partnership path, and in these instances, the objective should be centered on ensuring the viability of the insurtech, and towards fast tracking from start-up to partnership, to create a viable product for customers.
A focus on forming partnerships will lead to longer-term relationships and sustainable growth, as opposed to true disruption. Legal and regulatory changes
Whilst digital transformation is reshaping the insurance industry, incumbents and insurtech partnerships will need to operate within the evolving legal and regulatory framework.
As the insurance landscape changes, regulators will need to consider whether the current approach is still appropriate. Two main areas of change that are immediately foreseeable are product design and distribution, and disclosure.
In Australia, following the passage of the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 (Cth), accountability for product design and distribution will shift onto issuers and distributors, such that insurance products will need to be designed with a particular consumer in mind. This legislative change is intended to ensure that complex financial products which are not always easily understood by consumers are aimed at the right markets.
Leveraging big data and analytics, insurtechs are uniquely positioned to help insurers provide insurance products that are tailored to a specific consumer and can also evaluate the suitability of an insurance product with a greater degree of efficiency and accuracy.
Insurance leaders of tomorrow must prepare for the adoption of Artificial Intelligence, Blockchain, Big Data and Analytics, connected devices (IoT), and new business models
The focus of many insurtechs on providing more direct accessibility for consumers will also challenge the current disclosure requirements for retail products. In Australia, these are set out in Chapter 7 of the Corporations Act 2001 (Cth). Products which are designed to provide quick and simple solutions for customers may not readily satisfy the current disclosure requirements in every jurisdiction in APAC. Many predict that further changes can be expected to the disclosure regimes as the demand for point-in-time insurance services increases.
Cyber resilience
As the industry accelerates into the digital economy, there will also be a growing need to ensure cyber resilience. Mr Wayne Byers, Chairman of the Australian Prudential Regulation Authority has commented that cyber defense should not be in any way seen as a competitive battleground, or an issue of tension or friction between regulators and the industry, or industry participants and each other. Intelligence in respect of maintaining cybersecurity should be shared for the common good. Ultimately, the collective effort between government and intelligence agencies, regulators and the private sector can help to protect the financial services industry.
To ensure compliance with mandatory notification laws under the Privacy Act 1988 (Cth), industry participants must carefully consider the practical issues that arise in relation to data retention, responding to a data breach, and the unique crisis management challenges that these events can cause.
In order to partner with some of the largest financial services companies in Australia, insurtechs will need to have in place adequate systems and processes to achieve privacy compliance and must be able to evidence that in any later incident. This will involve putting in place appropriate information handling practices and being prepared to expeditiously assess and respond to larger data breach incidents.
The articles from these contributors are based on their personal expertise and viewpoints, and do not necessarily reflect the opinions of their employers or affiliated organizations.
