Bahaa Abdul Hussein stated that Fintech in Insurance industry is lately being termed as Insuretech and adds his view on how banks, insurance and tech look at each other.
When the popularity of FinTechs started rising, there were a few rumblings regarding upstart startups aiming to create havoc and replace insurance houses and banks. There was also a perspective that a tech-powered FinTech could do things that a bank couldn’t, in a better and cheap way. The suspicion still prevails! This makes us put forward a question- What is FinTech to this established financial industry, a friend or a foe?
Evolution of the relationship between FinTechs, banks, and insurers
To understand the relationship existing between FinTechs, Insurers, and Banks, the sectors must be separated. Though there has been a rise in European insure-techs in the past few years, just a few have requested their insurance licenses. The remaining have focused on product underwriting, administration or distribution. They aim at working with traditional insurers/reinsurers.
This has led to a shift in the value chain of insurance from incumbents to Insure-techs. This will be a continuous affair with the growth in the market share of these newbies. However, eventually, the insurers have a hold on the risk capital and are remunerated for effectively managing their Insure-tech relationships. This makes the role of insurers still quite profitable.
In the banking industry, there are a few FinTechs who have filed for banking licenses. Most of these follow the EMI or Electronic Money Institution model. This indicates that FinTechs can proceed with processing customer payments and holding funds, but a regulated bank has to safeguard the funds. Deposits can be accepted only by regulated banks and lent for a specific margin.
The Future of FinTechs and Insure-Techs
Fintechs have a slightly greater share in the banking-payments value chain than the Insure-techs, which portrays them as an existential threat.
The form established in Insure-techs is collaboration and is here to stay for a while. As development takes place in this sector, it contributes a lot to this industry by assisting in streamlining and extension of services to insurers. There isn’t a need for these Insure-techs to battle it with established insurers as the relation is a mutually sustainable one.
In the long-term, however, banks might not advance and grow solely by collaborations with FinTechs. Eventually, ownership of vital aspects like payment processing and credit decision-making will have to be retained by banks. This indicates that the capabilities of FinTechs will have to be imbibed in-house or banks will have to acquire FinTechs. This scenario is already visible in some of the progressive banks, that pursue both strategies.
FinTechs and Insure-Techs have grown and evolved rapidly. This is a positive movement for the insurance sector, as new services are launched, costs are minimised, and underwriting has improved. However, the situation in the banking sector is not as straightforward. A lot of FinTechs will walk down the path of becoming a bank and many banks might also end up acquiring FinTechs.
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