How Germany Innovates the Insurance Industry
If there’s one thing that can be said about Germans, it’s that they love to make sure they are insured against practically any eventuality.
In fact, the average household in Germany has six to eight different types of active insurance plans—making Germany one of the largest markets for insurance products.
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Because of this, the insurance market in Germany is thriving, with the $205 billion market seeing more than $16 billion in recurring provisions each year.
Understandably, the market is also rapidly developing, with the number of InsureTech startups more than quadrupling in the last decade, with each looking to make their mark in one of Germany’s fastest-growing economies.
Unique Barriers to Entry
In Germany, the Federal Government works with each of the country’s 16 states to oversee private insurance companies, making sure they comply with the numerous requirements of the Insurance Supervision Act.
The federal agency tasked with exercising this supervision is known as the Federal Financial Supervisory Authority, or BaFin, which was established in 2002.
As it stands, BaFin supervises more than 800 financial services institutions and 700 insurance undertakings, whereas new undertakings are unable to engage in insurance business without authorization.
However, for an insurance undertaking to be approved, BaFin will need to be content that the business meets three main criteria:
The interests of the insured are adequately safeguarded;
- the obligations under insurance contracts can be fulfilled at all times;
- the business operations are properly conducted and statutory provisions are met.
Because of this unique regulatory environment, Germany’s insurance market is notably more difficult to enter than many others, but this does come with the benefit of added consumer trust—something that is absolutely essential in an industry that deals with contractually agreed payments over long periods of time.
Huge Room for Further Growth
Germany’s insurance market is one of its fastest-growing economies, with the premium income for primary insurers gaining by 1.9% between 2016 and 2017—up from just 0.2% the year prior.
This trend is also seen in the absolute number of active insurance plans in the country, which according to the German Insurance Association (GDV) Statistical Yearbook 2018 grew to 434.9 million in 2017, up 0.9% in a year—growing 80% faster than the year prior.
Much of this growth can be attributed to the number of property and casualty contracts, which grew by 1.3% to reach 312.3 million policies, while healthcare insurance was just behind at 1.2% yearly growth.
Overall, Germany is the sixth-largest insurance market in the world, and the third-largest in Europe, with the country accounting for more than 4.5% of global insurance premiums, despite Germany accounting for just over 1% of the world population.
Despite these impressive statistics, only a single international player, known as Lemonade, has successfully entered the German InsureTech sector, whereas few local startups tend to expand abroad.
Because of this, as German insureTech startups continue to solve pressing challenges in the industry, it appears likely that their international appeal will only continue to improve—in turn bringing with it increased international investment.
Innovation in the Industry
Part of the reason the InsureTech industry is seeing improved growth in recent years can be attributed to its bustling startup activity, which according to a 2019 report by Oliver Wyman, consists of 130 InsureTech startups.
Fortunately, unlike most countries where startups operate as information silos, failing to share knowledge and new technologies with one another, the German InsureTech startup scene is uniquely collaborative, which helps to foster innovation in the space.
Besides this, an excellent level of healthy competition, in addition to significant cooperation between startups has produced an industry that is rapidly changing.
Many of these startups having the potential to disrupt the industry, while most others are working on long-standing issues that have challenged mainstays in the insurance industry for some time.
Likewise, InsureTech startups in Germany are increasingly working with frontier technologies, including artificial intelligence, machine learning, and blockchain to help drastically improve the efficiency and accessibility of insurance technologies.
As it stands, most InsureTech startups in Germany are in the maturation phase. Many are beginning to support established insurers in the space, while others are developing new business models that could have the potential to change the way insurance is accessed for the better.
Because of this rapid growth, it is likely that the German InsureTech industry will see its first unicorn in the coming years, as both national and international investments continue to increase.
Based on the industry’s willingness to adopt new financial technologies, it would not come as a major surprise if the first InsureTech unicorn arises through Germany’s also popular security token offering (STO) scene.
InsureTech in Germany
Despite the fact that the German InsureTech segment is thriving, a handful of major companies can be considered dominant forces in the landscape.
Among these, JDC Group stands apart as one of the frontrunners, thanks to its innovative platform architecture that makes operating in the industry a simpler task.
Part of the reason JDC Group has enjoyed such huge success in Germany is thanks to its plug-and-play insurance platform, which is poised to help shake up the country’s booming InsureTech industry.
Through the use of the white label technologies offered by JDC Group, insurance providers and other innovators in the space are able to reach and maintain customers far more efficiently than ever before.
JDC’s new Digital Officer, Stefan Bachmann, a former Google manager with years of experience, commented in an interview with me that “this is a great chance for everyone who already owns customers and wants to generate new revenues in this $221 bn market. Banks, independent financial advisors, and even bound agents have the opportunity to innovate their business models and increase revenue sustainably.”
Understandably, the expeditious adoption of technologies that can radically improve both profitability and efficiency is a key factor in what separates a struggling business from a thriving one. For this reason, JDC and several other InsureTech firms are also making rapid progress in the emerging field of “advisortech”—essentially the technologies designed to help firms stay on top of emerging technologies and operate more efficiently.
In the case of JDC, its advisortech business unit uses a combination of human curation and artificial intelligence to help partners select the best products to work with, giving companies much-needed insight on how to best make their mark in the financial industry, and stay ahead in an increasingly competitive market.
Disclaimer: This is a contributed article and should not be taken as investment advice.
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