For decades now, digitalisation has already been bringing about constant change in the insurance industry's core processes. In addition, intensified data processing enables greater risk adjustment in premium rates and more precise targeting.

While the progress of digitalisation in the insurance industry has thus far been stable, many companies fear a disruptive change in the sector. The reason for this is insurtech companies , a special form of fintech companies (see info box "Common fintech business models"). These innovative start-ups seek to use digital processes to establish themselves on the market, and in doing so are accelerating the pace of digitalisation in the insurance industry.

Risk, innovation and speed

A high level of entrepreneurial risk, innovation and speed are the hallmarks of the majority of start-ups. Some manage to hold their own on the market; others fail and some of them try again. This culture of venture, trial and error, failure and fresh starts is difficult to reconcile with the insurance business. It focuses on policyholders and their claims under insurance policies, which are long-term in nature.

For that reason, legislators have imposed stringent requirements on the authorisation of insurance undertakings. Insurtech companies are thus primarily formed along the value chain where they are not subject to supervision by BaFin.

Insurtech companies subject to supervision

As with the term "fintech", there is no legal definition of "insurtech", leaving it open to varying interpretations and meaning that there is no uniform figure for the total number of these companies. Insurtech companies are subject to insurance supervision when they act as risk carriers and thus require authorisation. In its day-to-day supervisory activities, BaFin does not differentiate between established insurance undertakings and insurtech companies. As already explained, the principle of proportionality applies to both.

Pressure on established players

The appearance of new market participants requires that established insurers make business decisions, for example to invest in infrastructure. In doing so, they must ensure that they are capable of managing the risks of the decision with regard to risk-bearing capacity.

Insurtech companies can contribute to promoting transparency and competition in the interests of consumers. They increase the pressure on the established industry to optimise its processes, systems and products. This does not just benefit consumers, but also solidifies the competitiveness and stability of the German insurance market in the long term.

BaFin does not believe that the core insurance business is affected by the new players on the market, since to insure means more in the long term than to be able to act quickly and innovatively on the market. In the age of digitalisation, insurance still only works based on one conventional value: trust.