Matt Cullen, Assistant Director, Head of Strategy, ABIThe insurance industry is rarely credited with many of the innovations we now take for granted. The idea for a fire service was brewed up in 17th century coffee houses to insure against arson, pension funds came from the desire to protect the wives of clergymen in the 18th century, and the blueprint for the modern welfare state ultimately emerged from Bismarck’s social insurance plans of the late 19th century.
Our history of financial innovation is impressive, but in the 21st Century, as technology evolves faster than ever before, the challenge of staying ahead of the curve is immense. That’s why this week the ABI hosted our first joint event, which will now be held every six months, with our members and a range of insurance and savings fin-tech start-ups to kick off Fintech Week, and share perspectives on the challenges of innovation in insurance and savings.
Fintech firms are often characterised as small outfits looking to usurp established businesses with an innovative idea and cutting edge technology. Unencumbered by legacy systems and the bureaucracy of large organisations, they are able to focus on delivering a service more efficiently and at a lower cost, thus disintermediating existing market players.
While this narrative has some truth, it hinges upon the assumption that the relationship between established firms and start-ups is purely confrontational. In our sector, this is too simplistic. Whilst fintech start-ups have unique and dynamic business models, the barriers to entry to becoming a risk carrier are significant. Any funds start-ups receive from venture capitalists or angel investors will cover salaries, office space and computing power, but the funding required to take a business from nothing to being a fully authorised and operational insurer is huge. In this context, it is no surprise to see that, almost without exception, start-ups in our sector are looking to disrupt the way products are bought, how they work and how they are understood, not by taking over from incumbent firms, but by partnering with them.
In the discussions at our event this focus on partnership and collaboration was clear, with a shared mind-set focussed on innovating to keep up to date with customer expectations, and an appreciation that neither existing nor emerging firms are likely to be able to deliver this without the other. Of course in the highly regulated industry we operate in, there is a third thread – a regulatory environment conducive to innovation. For a number of the start-ups at our event looking to become insurance intermediaries or offer personal financial management tools, regulatory authorisation was cited as the biggest challenge. In this context, the cultural shift at the FCA to better support innovation – with flagship schemes such as Project Innovate and the forthcoming regulatory sandbox – is key.
The Economic Secretary to the Treasury, Harriett Baldwin MP said at our event, “Fintech is quite simply essential in making financial services work for the customer”. We agree. As an industry that has always embraced technological change, we are determined to deepen our collaboration with the UK’s fintech sector to enhance the lives of consumers and meet society’s ever changing needs.
Matt Cullen is Assistant Director, Head of Strategy at the ABI