Disruption from big technology firms means that traditional primary insurers are facing an unpleasant future, an executive from Ping An Insurance (Group) Co. of China Ltd. has predicted.
"I'm not very optimistic about the outlook for most primary carriers a decade from now," said Donald Lacey, managing director and COO of the Ping An Global Voyager Fund, which invests in technology startups.
Speaking on an insurance technology panel at the S&P Global 2019 European Insurance Conference in London, Lacey said he was not expecting "Lehman Brothers-style explosions" of insurance companies, but he added: "I don't see most of the industry moving quickly enough to get on the other side of what is likely to be a very challenging set of distribution conversations."
Disruption of the traditional insurance industry, Lacey argued, would not come from the recent wave of insurance technology, or insurtech, startups as some have predicted, but from so-called digital ecosystems such as Alibaba and Amazon.
He said that when an insurer is negotiating for access to a single bank's customer base rather than many insurance agents, "the balance of power shifts." He added: "I can't imagine how ugly the conversations will become when the insurance community is having to negotiate with Amazon" for distribution deals.
He also said the disruption from such digital ecosystems is "probably coming faster than a lot of people think" and that "certainly we see it in China."
Lacey contended that over the next 10 years, insurers would see incremental improvements to their technology, but added: "I don't think there will be adequate imagination or resolve around figuring out new ways of interacting with customers."
This space, he said, would be filled by companies like Amazon, leaving the insurance industry with "a very low-margin business that's probably not a very exciting one [and] will probably lead to consolidation."
He added: "I don't think that's a great future."
Speaking on the same panel, Paolo Cuomo, head of strategy at Lloyd's of London insurer Brit Insurance, said that from a commercial lines perspective, the industry "can't continue to be technologically backward." Insurers and brokers should instead position themselves as a "partner in understanding risk," he said.
Johannes Bender, a director of insurance ratings at S&P Global Ratings, agreed with Lacey that the insurance industry's competitive position had yet to be disrupted by insurtech firms, and noted that insurers had instead started to embrace insurtechs to improve their own technological capabilities. He said the industry's adoption of insurtech could start to produce "winners and losers," and that although this had not happened yet, it could be seen in five to 10 years' time.
He added: "This is quite important for our assessment of insurance companies' competitive positions."