For the uninitiated, insurance technology, or InsurTech, is the system of tools and technological innovations that are used to drive improved efficiency compared to older insurance industry models.
In 2019, Germany had already begun to position itself as the de-facto hub for InsurTech firms, largely due to the uniquely collaborative nature of InsurTech startups in the country, in combination with extreme interest from international investment firms, which recognize the disruptive potential of many nascent German InsurTechs.
In a recent report, titled "The Future of InsurTech in Germany," global consulting firm Oliver Wyman examines how the InsurTech industry is likely to take shape in the coming years.
In general, Oliver Wyman found that although there was an initial InsurTech rush between 2010 and 2017, this is now beginning to level off, due to a large number of pivots and exits in the industry. This indicates the industry is moving from a startup-boom to a maturation phase, as digital insurers begin to take center stage, while full-stack carriers and managing general agents (MGAs) continue to battle for dominance.
Following a period of explosive growth in the last decade, during which time InsurTech startups were still finding their place in the industry, we are now beginning to see significant consolidation in the space, with most InsurTech firms now working on relevant problems in the insurance industry.
Because of this strong, but still slowed growth, it is likely that any disruptive change brought about by InsurTech firms will likely be gradual, as insurers increasingly leverage InsurTechs to reinvent their sales and delivery models. Likewise, the benefits of partnerships between InsurTechs, banks, and insurers will become increasingly evident in the coming years, as the potential for InsurTechs in improving the bancassurance segment becomes clear.
Finally, with increased international capital flowing into InsurTechs and the $205 billion German insurance market, it is possible that the industry might see its first unicorn in the coming years. This is likely to happen sooner, rather than later if the Federal Government of Germany continues supporting the development and scaling of innovative InsurTechs in the country.
A black hole for InsurTech talent.
Germany has also found itself a hub for InsurTech talent -- thanks in no small part to a huge initiative known as InsurTech Hub Munich (ITHM) -- a collaborative effort formed of more than 20 insurance and cross-industry partners, in addition to over 65 alumni.
The ITHM is supported by the Federal Government of Germany and was recently appointed as one of the country’s 12 digital hubs. Boasting an impressive network of insurance and cross-industry partners such as PwC, Microsoft, Roche, and Markel, as well as investors and network partners including the likes of Lemonade, Waffle, Plug and Play, and massUp, the InsurTech hub is widely regarded as a force helping to blaze the trail in the InsurTech industry.
Part of this can be attributed to its two accelerator programs: W1 Forward InsurTech (an equity-free innovation program designed to InsurTech startups scale-up) and Plug and Play’s InsurTechEurope pwd (for more developed startups). These, in combination with the mentorship and other business development opportunities available as part of ITHM, have made Germany home to much of the world’s leading InsurTech talent.
Colleges and universities in the country have also ramped up efforts to produce the next generation of minds behind the rapidly evolving FinTech sector, which has a significant amount of overlap with InsurTech. In 2016, the country launched the first bachelor’s program with a concentration on FinTech and several similar programs have since sprung up across the country, aimed at both educating students on a rapidly evolving field and providing an entry route into the nascent FinTech industry.
Likewise, Germany is already home to some serious InsurTech talent, which has seen the country benefit from some of the earliest and most significant InsurTech innovations, this has seen international firms set up a presence in the country in an attempt to tap this reservoir of talent.
Part of the reason Germany has found itself at the center of InsurTech innovation is thanks to the forward-thinking Federal Government of Germany, which works with private insurance companies in all 16 German states to ensure they meet several important standards.
The main way the government helps to maintain the careful development of the InsurTech space and related industries is through the regulatory authority known as the Federal Financial Supervisory Authority (BaFin), which was established in 2002 with the aims of helping position Germany as a global leader in financial supervision.
BaFin works with financial institutions, services providers and insurance undertakings to ensure that these are solvent and maintain their long-term risk-bearing capacity—an important consideration considering the long-term nature of most insurance contracts.
Understandably, this has positioned the country as a leader in insurance products, making Germany currently the world’s sixth-largest insurance market, owed in no small part to the level of trust built between consumers and insurance providers, thanks to the efforts of BaFin.
Building better InsurTech.
Besides this, Germany is also home to a number of firms that simply make it easier for other companies to launch insurance products and services. Among these companies, the German financial services company JDC Group AG stands apart as one arguably doing a lot to help new InsurTechs and established players navigate the notoriously stringent regulatory environment of Germany.
To accomplish this, JDC Group has invested a whopping €40 million developing its platform architecture, which leverages its data room and custom-built insurance wallet, in combination with the 200 APIs of its broker pool and portal strategy to help InsurTechs and financial services companies better attract and maintain customers, as well as improve operational efficiency.
The enterprise’s huge investments and the addition of ex-Google Finance Industry Manager, Stefan Bachmann as Digital Officer has also seen the company pioneer the emerging field of ‘AdvisorTech’, which is the set of tools that uses emerging technologies, including artificial intelligence and automated data-processing, along with human oversight used to deliver industry-leading consultive products.
This, in combination with its Plug and Play insurance services offering, makes JDC Group one of just a handful of InsurTech innovators helping startups and established firms alike achieve technological transformation in a rapidly developing industry.