Letter: Another reason insurance has proved technology-shy

In the article by Oliver Ralph entitled “Insurance still resistant to charms of technology” (Report, January 12) he identifies consumer indifference towards insurance as the main reason for the lack of impact of insurtechs on consumer insurance.

I’d like to add the high variable cost of insurance as another key factor. Between 65 per cent (home insurance) and 90 per cent-plus (car insurance in a bad year) of consumer premiums are paid towards claims and commissions to brokers or marketing costs, be they pay-per-click advertising or referral fees from comparison sites.

Categories with the highest premium volume tend to have the highest variable costs.

In industries with lower variable costs, disruptive start-ups can use this low marginal cost to lower prices for end users, thereby buying market share. This effect is magnified if more modern IT platforms provide a cost advantage compared to legacy players.

A case in point is the payments industry. With much lower variable costs, it has been transformed to a much larger degree than insurance. While occasionally archaic, insurance has been pretty effective in providing protection to consumers at modest margins.

Pieter Lekkerkerk
Amsterdam, The Netherlands