When Insurtech first started to surface (see here for our first post in March 2015), some people viewed it as separate from Fintech. We always viewed it as a subset of Fintech. This post explains why and the interesting intersections between InsurTech (which we cover each Thursday) and WealthTech (which we cover each Tuesday).
The simple reason we view InsurTech as a subset of Fintech is that is how the Financial Services business has viewed it historically. More importantly, customer engagement requires solving pain points regardless of categories. Opportunity often lies at the intersection between historically separate categories. This post looks at some of those opportunities at the intersection of Insurtech and WealthTech.
First, in a big city a long way away and a long time ago…
History lesson: Citibank and Travelers
The modern banking conglomerate emerged when Citigroup was created in 1998 from the $140 billion merger of a bank (Citicorp) and an Insurance company (Travelers Group). They had to change the law to accommodate that deal (sayonara Glass Steagal). Travelers Group was more than Insurance. It had been put together by Sandy Weil from parts that included credit services, consumer finance, brokerage, as well as insurance. Sandy Weil was a visionary deal-maker and entrepreneur who understood that consumers and businesses needed all these services and there could be efficiencies if they were in one entity. This was Rebundling 1.0. The problem is that in the digital age, tightly coupled interfaces are a problem and the future lies in loosely coupled interfaces using Open APIs – this is Rebundling 2.0.
For now, back to the past. Sandy Weil was a visionary deal-maker who understood one thing very well, which is that Banks are distribution channels. This is the same today, whether it is a traditional FS product or Fintech, banks are seen as distribution channels.
One product sold through those distribution channels is Insurance.
The problem today for Incumbents is that traditional Insurance sold through traditional Banks is no longer good enough. That is where the Digital Challenger Banks maybe the new route to market for digital insurance.
Plus ca change, plus c’est la même chose (a bit of schoolboy French in honour of our liberté, égalité, fraternité friends who voted that way recently). It is still all about distribution, it is just that the channel has changed.
Life insurance is a wealth management tool
Actually all insurance is a risk management tool and risk management is a critical aspect of wealth management. You pay now to protect against a big payout later that could destroy whatever wealth you have accumulated. Add some tax optimization and it becomes a savings and investment tool.
Insurance is a tool for Fixed Income investors
This is what we learned when we looked at Tradeplus 24. We knew that Insurance could be applied to mortgages aka the toxic CDS pools at the heart of the Global Financial Crisis. Seeing insured credit as the key to lower cost finance for SMEs was an eye-opener.
Insurance is a tool to bring Bitcoin into the mainstream.
This is what we learned when we looked at Bitcoin in Japan. Insurance makes consumers feel safer. If you make consumers feel safer about Bitcoin they will use it more.
Stackonomics: Below the Reinsurance layer is the capital markets layer.
At first we thought that Insurance was forming into a 3 layer value stack, but after interviewing Joe Taussig we learned that it is a 4 layer stack and below the big iceberg of Reinsurance is an even bigger layer of the Capital Markets.
Bernard Lunn is a Fintech thought-leader and deal-maker.
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