How Well Does Tech Have You Covered? The Effect of InsurTech Firms on Productivity in the Insurance Industry

Abstract

The recent entrance of InsurTech firms into the insurance industry has sparked debate as to their effect on the industry as a whole, namely whether this effect is disruptive or not. This paper answers this question by analyzing the effect of the global level of investment in the InsurTech space on the global value of premium income per employee of traditional insurance companies, from the first quarter of 2013 to the third quarter of 2018. In this way, it answers the question of whether the effect is disruptive from the perspective of labor productivity. The results of this study suggest that this effect is disruptive—there is a negative elasticity which exists, after a lag of two quarters, where a 10% increase in the level of InsurTech investment is predicted to decrease the dollar value of premium income per employee for traditional insurance firms by 1.6%. This elasticity effect was also found to be stronger when observed for larger lags, up to a lag of two years—where a 10% increase in the level of InsurTech investment is predicted to decrease the dollar value of premium income per employee for traditional insurance firms by 4.5%