The Emergence of InsurTech
Financial technology (fintech) has materialized as a result of the increasingly prominent role that technology plays in every part of our lives. Once perceived by the finance industry as a passing fad, fintech has gained global credibility and influence so much so that many incumbents have embraced it by creating their own their own fintech solutions or partnering with startups to drive innovation forward.
As fintech continues to develop and mature, it also impacting other related sectors through the rise of other related offshoots. One such notable newcomer is regulatory technology (RegTech), which addresses the growing need for banks to keep up with constantly evolving regulations.
Now another fintech branch is emerging as a game-changing opportunity as new players and investors enter the space. Insurance technology (InsurTech) is not an entirely new concept, but it is being studied more closely as new companies and their products gain further credibility through increased user adoption.
Previously, a sleepy corner of the market, InsurTech has begun to draw a surge of interest in the last few years. CB Insights found that investment in InsurTech companies has dramatically risen from $131 million in 2011 to over $2.6 billion in 2015. By 2019, the technology spend in the global insurance industry is expected to reach $205 billion. What’s behind the surge in popularity for InsurTech?
Opportunities for Insurance Innovation
At the present time, the cost of insurance is very high for companies that provide coverage. Between 20 and 40 percent of premiums is spent by insurers on operations, marketing, acquiring customers, and distribution. In some cases, 15 percent of the insurance premium ends up being spent on recurring commissions for brokers, who are considered invaluable by insurers that rely on them for selling policies.
Like any other business, insurance companies are looking for ways to reduce their costs and expenses in order to remain competitive in the marketplace. Through the introduction of greater efficiencies from InsurTech solutions, insurers can expect cost savings through improved claims management, lower operating and acquisition costs, and cost-efficient service.
Also, as with financial services, consumers seeking insurance coverage are less willing to tolerate friction as part of the customer experience. For most customer journeys, the process still involves a limited number of insurance options, mounds of paperwork, and long waits for documents to be processed. InsurTech is now reinventing how people shop for insurance, purchase policies, and even provides opportunities for insurers to improve the after-sales follow-up.
Now that InsurTech has emerged, the industry landscape is rapidly changing, and not only in terms of obtaining insurance. Telematics, which provides the ability to track road habits for insured drivers, have been used by insurance companies to encourage safer driving in return for lower premiums or other incentives.
In Italy, where adoption of telematics has reached an all-time high of 16 percent of all insured cars using it, the use of this technology has provided other benefits to drivers apart from lower premiums. One key feature is the first notice of loss (FNOL) notification. This allows insurers to be informed the moment an accident occurs in a vehicle equipped with a telematics device. A major benefit of FNOL is the ability for insurers to contact their clients soon after an accident has occurred, and, if necessary, call for emergency services to provide immediate assistance.
Key InsurTech Players
Although InsurTech has not yet reached the same level of maturity as fintech has, there are already some startups that are making solid progress in building better alternatives for consumers. Here are just a few of those companies.
U.S. InsurTech startup Oscar was founded in 2012 on the premise of providing not only better health insurance, but better healthcare. The company’s team consists of engineers, data scientists, and healthcare experts that work closely together to provide an improved overall experience. In addition to helping clients with purchasing medical coverage that suits their needs and budgets, Oscar also provides services such as a free Doctor On Call service and gift card rewards for staying active. Services are currently offered in certain states, and they are working quickly to expand.
Founded in 2013 and based in Switzerland, Knip is a mobile-based insurance brokerage service. All insurance brokerage and policy management services are managed from their mobile app, which has been downloaded 330,000 times in Germany and Switzerland. Upon request, they also provide insurance advice via their team of salaried brokers who are not paid by commission.
Insurify claims to be the first online car insurance shopping platform. This startup began its life at the renowned Massachusetts Institute of Technology (MIT) and launched Evia, its artificially-intelligent virtual insurance agent in January 2016. In as little as three minutes, Insurify can provide real quotes and recommendations based on a client’s profile.
Named for the famous Cuban revolutionary, UK-based Guevara has built a platform that allows people to create their own insurance pools online. This allows members of each group to provide coverage for their automobiles at rates considerably lower than through traditional insurance companies. According to Guevara’s website, groups can save as much as 50 percent when they keep their claims low.
Some industry insiders, such as Mark Wilson, CEO of UK insurance company Aviva, sees the possibilities of InsurTech but believes that it still has a long way to go before it reaches its full potential.
“Insurance, when it comes to digital, is in the Stone Age globally, and I think we need to do what it takes to be up to where it should be,” said Wilson.
This being said, InsurTech can learn a great deal from its older cousin, fintech.
Seeing that the big banks are collaborating and partnering with fintech startups, should the world’s largest insurers, such as MetLife, Aviva, and AIG, consider joining forces with InsurTech companies? Why or why not?