While there are a number of trends in insurance technology (InsurTech) that could change the industry's business model, Standard and Poors (S&P) does not expect it to have any effect on insurance company ratings over the short-to-medium term.
In a report on InsurTech released earlier this week S&P notes that it has not developed as far as the banking sector equivalent, FinTech, which is already taking away some of the banks’ market share. "As insurance is highly regulated and capital-intensive, with high barriers to entry, we regard InsurTech as complementary to insurers, rather than a substitute for insurers," says the ratings agency.
Although technology start-ups can gather a lot of valuable information about customers, S&P argues that insurers are in a better position to turn this data into a competitive advantage. Right now, however, insurers are concentrating on using technology to reduce costs, for example through digitalization and streamlining back-office functions.
"In our view, technological developments are unlikely to affect ratings or the shape of the market in the short-to-medium term," concludes S&P. "We characterize InsurTech as both a long-term challenge and an opportunity, with material effects that may only start to emerge in 10 years' time."