The Nordic insurance market is highly unique, running on legacy systems that are challenging to modernise, but serving a highly satisfied user base that isn’t complaining about any lack of change.
The Nordics are one of the most mature insurance markets in the world, operating on mainframes that are largely incompatible with modern systems. But they also have a highly satisfied customer base—customers rarely change providers in their lifetimes.
Although customer retention remains high, nothing stands still. Insurance companies in the Nordics will eventually need to upgrade their legacy systems or risk being raided by an aggressive disruptor—but only if that disruptor’s software can handle the complex way that Nordic insurance policies are renewed.
Innovation challenges
The Nordic legacy infrastructure means the Scandinavian countries experience more challenges to innovate than less mature markets.
“Nordic companies have typically handled innovation using middleware solutions,” says Shreyas Vasanthkumar, Managing Director for Europe, the Middle East and Africa (EMEA) at Duck Creek Technologies, a global insurance software company. “But they’ve reached a point where it’s no longer viable to maintain.”
Insurance has traditionally been the laggard in fintech, not only in the Nordics. That’s changing now. Sweden currently leads the way, hosting 60% of the region’s insurtech startups, including mobile insurance company Bima; home insurance provider Hedvig; embedded insurance product Omocom; and several others.
“Something will happen in the market. Ultimately, there will be a player or two that will have the power, finance, eagerness, and aggression to compete harder. And then this market will become an interesting battlefield”
Shreyas Vasanthkumar,
Managing Director, Europe, the Middle East and Africa (EMEA),
Duck Creek Technologies
In Denmark, an insurtech called Undo simplifies signing up for car insurance and offers pay-as-you-go travel insurance—you only pay on travel days.
Products of this type are highly challenging to launch using the existing infrastructure, Vasanthkumar tells NFM, and sometimes downright impossible.
But insurtechs might be just the backstop needed to hold any potential disruptor off until the major insurers can carry out a full-scale digital modernisation.
Insurtech symbiotic relationship
In the banking sector, the symbiotic relationship between incumbents and fintechs is well established. Many of the world’s large banks have embraced ready-made solutions provided by fintechs because it means those banks can innovate faster.
Tryg’s Head of Nordic Innovation Discovery, Line Dalsfort, is eager to establish meaningful partnerships with insurtech startups because it would help the insurance giant embed its insurance products in other apps. Tryg is currently the largest non-life insurer in the Nordics. “You don’t always have to go into your core system to innovate,” she tells NFM. “We have really added value with several insurtech startups.”
Tryg has several partnerships with insurtechs, including one with Undo, where Tryg is the insurer behind the app’s service. But Dalsfort agrees that the user must ultimately benefit. Where integrations exist, they must be seamless. And if that can’t be achieved, then an infrastructure upgrade might be the way to go.
“We have a responsibility to our customers,” she says. “Even though people are currently happy with us, as shown by customer retention, we have an obligation to ensure they remain happy.” That means insurance companies must keep their guard up and innovate in-house to avoid overly depending on too many intermediaries that could ultimately push the costs up for the end user.
“You don’t always have to go into your core system to innovate. We have really added value with several insurtech startups.”
Line Dalsfort,
Head of Nordic Innovation Discovery, Tryg
Customer satisfaction makes the Nordic insurance world go round
That sense of obligation to the customer is a core principle of the Nordic market. “The United Kingdom is also a very mature market,” says Vasanthkumar, “in terms of spending and penetration. But the Nordic level of satisfaction with their insurance company is far higher than in the UK. People love their insurers in the Nordics. The situation isn’t the same in the UK.”
This has forced the UK market to innovate far more rapidly than the Nordic one. “Retention levels in Norway are around 80 or 90 percent,” Vasanthkumar says. “They’re nowhere near that in the UK. Loyalty, or lack thereof, is a big issue in the UK. In stark contrast, it seems to be a non-issue for Nordic insurers, particularly in Norway. The reason is their commitment to quality and the ability to deliver excellent service in return for customer loyalty.”
This high customer satisfaction has directly contributed to the massive profitability of Nordic insurance companies, some of which consistently hit a Combined Ratio of 80-90%, Vasanthkumar says.
Exclusive first findings from the 2023 Global Consumer Insurance Insights Survey, extracted for the Nordic region.
Highly complex renewal process
Vasanthkumar tells NFM that the Nordic market maintains its stability mainly because of the way insurance is sold in the Nordics—in bulk. When a customer renews, the insurer renews the customer’s entire portfolio. In other countries, customers renew policies individually.
Renewing policies in bulk is great for customer retention, but it’s a nightmare from a technical standpoint. Renewing everything at once is highly complex, and finding a software system that deals successfully with that for the private insurance market is difficult.
“Most insurance systems are architected product-line by product-line,” he says. With multiple products in one basket, you need the capability to renew the entire basket as well as individual products. You need to account for mid-term adjustments, cancellations of individual policies, account for endorsements—written amendments that change the terms of the policy—and other factors.
When in Rome, do as the Romans do. When in the Nordics, sell insurance in bulk.
“At Duck Creek Technologies,” Vasanthkumar says, “we’re lucky that we can handle these packaged products out of the box because our DNA is in commercial and specialty insurance.”
Commercial and specialty insurance operates much more complexly than private insurance. Large commercial insurances have highly complex ratings and policies, and multi-risk policies—policies that cover several risks under one policy.
Technically speaking, dealing with the factors of a multi-risk policy would be the same as dealing with multiple policies in a single basket.
An interesting battlefield
The complexity of renewal might be another reason that no disruptor has successfully entered this field—it’s simply too complex to implement. Or perhaps the right player simply hasn’t seen the opportunity.
In either case, Nordic insurers will have no defence if that player does appear and shows the aggression typical of an upstart newcomer hungry for market share.
“We have an interesting situation in the Nordics,” Vasanthkumar says. “It’s an unusually profitable market that cannot really innovate much because of its legacy systems. Something will happen in the market. Ultimately, a player or two will have the power, finance, eagerness, and aggression to compete harder. And then this market will become an interesting battlefield.”
