Strategic decisions over innovation in the Finnish insurance market: The arrival of usage-based car insurances in Finland

Abstract

For most insurance customers in Finland, and around the world, price is their main criteria to buy or not to buy an insurance. At the same time, risk management is the biggest challenge for the companies. Usage-based insurances based on telematics technology could provide the customers with a chance to significantly lower their car insurance payments and offer the companies a possibility for very efficient risk management. Car insurances based on the technology are already on sale in many countries, but not yet in Finland. What is argued in this thesis, is that the regulations in Finland have affected the insurance companies’ business models which then have affected the competition. This has then led to a situation when it is not necessarily a strategically sound move for insurance companies to strive for telematics despite its possible benefits for them and the customers. Although this is the starting point, the results of this thesis should not just solve this particular problem, but to generate a more widely usable mechanism.

In the literature review of this study subjects of disruptive technologies as competitive advantages, business model innovation as competitive advantage, regulation as an obstacle to business model innovation and the relationship of innovation and imitation are all observed. The theoretical framework created from these subjects helps to understand the findings of this study, and supports the final mechanism presented in this thesis.

To both, find out an answer to the dilemma of the Finnish insurance market, and to create a mechanism applicable for other issues as well, grounded theory was selected to be the basis for the methodology of this study. For data collection seven interviews were conducted with managers who were well informed in the competitive situation of the market and their company’s strategy. The respondents represent different insurance companies, and account for almost the whole car insurance market in Finland.

Based on the findings, and what was discussed in relation to the theoretical framework, it was found out that the high level of regulation has molded the business models of the insurance companies to be similar to each other, which then creates competition where the competitive measures are alike. Also, telematics as a concept is outside the companies traditional comfort zone towards ambiguity and legislation, and it might threaten the profitable status quo so the companies are slow to adapt it.

It is then argued that companies should run tests to lessen the level of ambiguity, and to be prepared for sudden changes, create strategic alliances with telematics stakeholders to make imitation more difficult, and finally to diversify away from car insurances to lessen their dependency on that part of the market. It is also proposed that the theory found in this study could be used for example to study the development of the health care industry and the challenges presented by modern information technology in the Finnish taxi-industry and in the area of consumer banking.