Technology continues to evolve, bringing new opportunities, social change and new expectations for consumers. That’s why insurance undertakings and intermediaries continue to develop and revise their business models, often in increased co-operation with third parties (e.g. BigTech companies and start-ups), bringing both beneficial innovation and a new set of emerging risks that have to be taken into account. The objective of this consultation is to understand the advantages, opportunities and risks of market players’ dependence on the outsourcing of innovative projects.
These changes in firms’ reliance on outsourcing and third parties bring potential benefits and opportunities.
The discussion paper gives examples of co-operation with third parties, highlighting the fact that InsurTech start-ups are often partnering with incumbents (both insurers and intermediaries). This partnership is beneficial to both sides : it allows incumbents to benefit from cutting edge technology while startups can benefit from incumbents’ customer-base – this is particularly important for insurance intermediaries as they often have an established personal relationship with consumers – market knowledge, and regulatory expertise.
Furthermore, InsurTechs acting as intermediaries and initial points of customer contact, such as comparison portals and sites that offer financial advice or contract management functionalities, seem to be most favoured co-operation partners. Incumbents are also increasingly partnering with authorized insurance intermediaries to distribute products in new ways (e.g. via mobile apps and chatbots).
Nevertheless, co-operation with third parties also create new risks, as conduct and prudential risks, legal and compliance issues or even concentration risk if a large number of undertakings and intermediaries become dependent on a small number of dominant outsourced or third party service providers. In this context, a possible fragmentation of the insurance value chain could occur, including, most pertinently, a potential for a reduced regulatory and supervisory ‘grip’ on the relevant activities in the value chain. The goal of the public consultation is therefore to get a better picture on possible fragmentation of the European Union’s insurance value chain and supervisory challenges related to that in order to plan for next steps.
As a consequence, supervision requires more attention to different companies involved throughout the value chain.
The deadline for submission of feedback in EU Survey Tool is 7 September 2020.