In recent times the use of technology in the provision of financial services has become well established, with the likes of crowdfunding platforms and 'Peer-to-Peer' (P2P) lenders already considered fairly mainstream. The insurance industry has however, traditionally, been slow to embrace new digital trends. A shift in this attitude is now becoming apparent as a number of developments in the area of insurance technology, or InsurTech for short, continue to gain prominence. InsurTech itself refers to the implementation of technology by traditional insurance firms in the targeting of all areas of insurance, including distribution (how insurers reach consumers) and analytics (how insurers collate and use data).
Primarily, InsurTech innovations have been developed by insurers in partnership with insurance technology start-ups. As expected, the emphasis of many consumer facing start-ups has been to reach the public directly by, for example, developing mobile applications. One such app is 'Cuvva', which offers hourly car insurance whereby users enter the registration number and approximate value of a vehicle, along with the period (usually hours or days) to be covered and then send a picture of the vehicle to Cuvva for an instant quote. One interesting aspect of this model is that it allows users to check social media platforms for available vehicles from nearby located friends. Item by item insurance is also being invested into quite heavily. Start-ups like 'Trov' or 'Simplesurance' focus on providing specific coverage for individual needs by allowing insurance to be purchased at the point of sale of goods or services. Although not an altogether new concept, the range of items which can be covered extends far beyond traditional items such as smartphones, laptops or televisions.
Conduct an online search for peer-to-peer (P2P) insurance and you will also find a sizeable number of Insurtech start-ups focusing on group, or people-to-people, insurance. 'Friendsurance', which was founded in 2010, is one such P2P company. The basic premise of this model being that you and a group of your family or friends, will pool your money together and pay this towards your group's insurance premium. If your group then succeeds in keeping claims down, or not claiming at all, then the remaining funds are used for the following year's premium. It is however also true that this P2P model has been challenged for not being as innovative as it may first appear. In particular, industry detractors claim that this is what mutual insurance companies have essentially been offering for centuries. This may stand true, but often the repackaging of old or existing concepts will be just as successful as altogether new ideas when the branding and functionality are exceptional.
In terms of investment within InsurTech, a report from CB Insights stated that funding for insurance technology firms rose from $740million in 2014 to $2.7billion in 2015. Most recently, CB Insights has reported that InsurTech investment in 2016 was approximately $1.43billion, but this drop (when compared to the previous year) appears to have been due to a number of particularly significant investments during 2015. That being the case, all current reports point towards investment in InsurTech continuing to rise year on year. So what is driving the growth in InsurTech? To a large degree the answer is customer expectation and how the general public now expects, and is increasingly demanding, that they are able to interact with insurance service providers. With the age of smartphones and online connectivity upon us, there really are no excuses for insurers to continue lagging behind other industries, such as the banking sector which has so successfully leveraged mobile and online platforms. It is also of note that many global accountancy and business advisory groups are investing and recruiting InsurTech experts in senior executive positions. These individuals are bringing a wealth of experience in the application of digital platforms to traditional insurance offerings, in their roles as Chief Technology Officers (CTO) or Chief Digital Officers (CTO).
From a local perspective, there are already a number of InsurTech firms established in Gibraltar as part of our evolving FinTech community. Furthermore, the jurisdiction's reputation as a centre of excellence for insurance business means that it is well positioned to attract further investment in this area. Gibraltar has a wealth of expertise, both in its regulator, the Gibraltar Financial Services Commission, and in the private sector through its network of insurance managers and advisory firms. The jurisdiction has a proven track record for innovation within financial services, with the implementation of protected cell company legislation and the expansion into Insurance Linked Securities (ILS) being particularly pertinent examples. Gibraltar's online gaming sector is also widely regarded as one of the world's best regulated and most attractive gaming hubs, with a majority of global blue chip gaming operators headquartered locally. In addition, other sub-sectors have grown around the gaming sector, such as those e-commerce companies, payment services providers and data storage centres which have made Gibraltar their home. These entities provide invaluable operational support to the gaming sector, as well as the wider financial services industries, meaning that new InsurTech and FinTech firms could very easily plug into the existing infrastructure.
There are countless success stories in Gibraltar's relatively short history as a finance centre and therefore great optimism amongst many that others will follow, regardless of what shape the UK/EU withdrawal negotiations may take. InsurTech can of course be another one of these stories. As mentioned, Gibraltar already has the insurance expertise, along with many of the elements required for InsurTech (as well as FinTech) firms to thrive. These include a committed and proactive Government, as well as an attractive fiscal and regulatory regime with a headline rate of 10% corporation tax and no VAT, capital gains or withholding taxes. In terms of personal taxation, there are favourable special tax statuses for executives, such as the Higher Executive Possessing Specialist Skills (HEPSS), which add to Gibraltar's attraction as a base from which to conduct business. During the 2016 budget announcement, HM Government of Gibraltar also announced the establishment of a dedicated fund to support the development of new business start-ups in Gibraltar. This scheme is comprised of a points based system, where successful applicants are provided funding in the form of loans. Furthermore, another start-up incentive scheme is available (currently until the 30th June 2017) for newly established companies or limited partnerships meeting certain targets, such as a minimum number of employees. Under this particular scheme, eligible entities are able to claim a tax credit of up to £50,000 per year for the first three years of operations.
Gibraltar's continued access to the UK financial services market should also prove attractive for insurance start-ups looking for a domicile from which to provide services to the UK market directly. At present Gibraltar already enjoys access to the UK market via bilateral arrangements and, as reaffirmed by Robin Walker (the UK Government's Minister for Exiting the European Union), during his recent visit to Gibraltar, the UK wholly intends for these direct access arrangements to continue. When the aforementioned factors are combined with existing incentives already introduced by the Gibraltar Government in past years, then it is apparent why the Rock enjoys such a business friendly reputation. With an established environment for innovation, an all-important low cost base and enthusiastic support from both the public and private sectors, Gibraltar is undoubtedly a perfect fit for InsurTech business.
Christian Caetano specialises in the fields of insurance and financial services, corporate and general business law. He is particularly active in the Gibraltar insurance market, where he advises open market insurers, captives, insurance managers and intermediaries on a range of regulatory, business conduct and corporate law matters. Click to read more about Christian Caetano
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