Insurtech – Reshaping The Insurance Industry

Bottom line:

Insurtechs improve the whole insurance value chain by speeding up processes and improving the overall customer journey. The market is expected to triple by 2025 as advanced analytics and real-time pricing offer more personalized insurance solutions at lower costs for both insured and insurers.

Growing at a 5Y CAGR of 25%, the Insurtech industry represents an attractive investment opportunity. We favor this sector by having a substantial 19% exposure to Insurtech in our Fintech certificate.

Pioneering Digital Innovation In Insurance

The insurance market is fully embracing technology

The insurance sector is digitizing at the speed of light. AI, Big Data, wearable technology, and data science models have produced a novel subsector of Fintech - Insurtech. These players may operate alone by offering peer-to-peer insurance or cooperate with established insurers by providing them with innovative tech solutions.

  • Global Insurtech market is projected to skyrocket from $8.5bn to $26bn over 2020-25, a 25% CAGR, with Europe contributing half of it.

Simplifying the life of insured and insurers

Insurtechs are improving processes in the whole insurance value chain. They simplify customer’s journey, provide personalized instantaneous one-click insurance solutions for clients, and supply insurers with AI-powered pricing and claims management.

  • On-demand insurtechs Trov and BoughtbyMany offer pet insurance, travel protection and more. Moreover, firms such as Lemonade or Hippo offer an insurance quote in 60 seconds.
  • With Claimable, insurers may invite their customers’ to an intuitive platform with real-time tracking and processing - an API costing only $4 per claim.

Opportunity, not a threat, for traditional Insurance companies

Insurers compete primarily on product differentiation, pricing, and customer service. Technology improves these areas, and Insurtechs create value through tactical partnerships with incumbent players.

  • Australian Suncorp has partnered with an Insurtech to provide its Millennial generation customers with instant access to insurance for personal items.
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Adapting To Evolving Customer Needs

Providing increasingly transparent and personalized solutions

Some insurtechs attract customers by offering insurance policies found nowhere else. Others enrich consumers’ options about what insurance to choose and where to buy it. More customers choose to be insured given increased transparency and comparability.

  • Insurtech BoughtbyMany caters to niche groups who have challenges finding good insurance, e.g., people affected by diabetes or young drivers.
  • BusinessComparison.com compares insurance deals and helps to save money and time.

Modernizing transaction processes

Insurtechs modernize client onboarding, claims management, and billing by relying on technology that speeds up transactions. Furthermore, Big Data and analytics provide real-time pricing and risk-modelling which innovate policy design and improve user experience.

  • Using AI and Big Data, Chat-bots may personally guide each customer through the identification process or help process incidents by analyzing live location or photos.
  • For insurers, Insurtechs may offer safer storage and faster access to customer records, e.g. by using Blockchain technology.

Solving the problem of unsustainably rising premiums in the U.S.

At the current trend, the cost of U.S. healthcare insurance premiums will reach average household income by 2025 making it difficult for people to stay insured. With innovative models and AI, Insurtechs may adjust premiums on demand which helps reduce processing costs resulting in lower premiums.

  • Insurtechs can help capture 55% of the world’s population that is still uninsured or may not afford excessive premiums.
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Enablers and Visionaries

Cleverly addresses new and emerging risks

Unlike traditional insurances, Insurtechs are both quick to embrace and insure new technologies and products. For example, they are now offering drone insurance while simultaneously using them as a tool to analyze risks by surveying the property for structurally weak points.

  • Companies such as Slice and Flock can meet highly specialized demand, e.g., ensuring private vehicles used for commercial purposes on a pay-per-ride basis or drones on a pay-per-flight basis, respectively.

Enablers, not disruptors

Insurtechs are focusing on reshaping certain steps of the insurance process and will benefit the most from partnering with traditional players. They are expected to effectively transform the sector rather than disrupt it.

  • Most Insurtech solutions such as apps and data science algorithms are available on a standalone basis. However, integrating them in any established insurer’s framework will yield more value for both parties, by offering a better service to more customers.

Innovating with Top-down or “Open-Architecture” approach

Innovation is happening through sharing the insurtech architecture openly through partnerships and M&A synergies.

  • Accelerating VC investments have cumulatively reached $16bn since 2008 with investments shifting towards more mature startups.
  • There are currently over 500 Insurtechs out of 1200 launched in the past decade, who have a proven track record and are now enjoying rising valuations.
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Catalysts

  • Lack of competition between insurers. Rising premiums will leave three options – keep paying, switch to Insurtech or become uninsured.
  • Increased connectivity. A growing number of sensors would capture more data and provide better analytics. People would choose Insurtechs as they offer personalized solutions and are able to flag risks before they become claims.
  • Blockchain. A consortium of Allianz, Swiss Re, Zurich, and Aon, is finalizing blockchain-reinsurance solution called B3i. If proven successful, other insurtechs will follow the example by integrating blockchain and improving their operations.

Risks

  • Lack of partnership. Developing in-house solutions instead of partnering with insurtechs would hurt the insurance sector and slow down innovation.
  • Unsuccessful regulatory reform. Failure to create a regulatory sandbox allowing insurtechs to test products would prevent them from recovering development costs and obtaining a statistically large sample of useful data.
  • Back to the old ways. If Insurtechs do not get enough traction with incumbents, they could revert to less profitable and fierce competition.

Sources:

Global InsurTech Market Will Grow by Almost USD 15.63 Billion During 2019-2023 | Technavio 
Insurtech Boom Will Reshape The Global Insurance Market, Grand View Research, AtonRâ Partners
Health Care Costs – Part 1, "The Problem" 
The view from a start-up perspective: Is competition broken? How can it be fixed?
Why Collaboration Is The Future Of InsurTech, McKinsey, KPMG, AtonRâ Partners,
Venture Scanner with analysis by Deloitte Center for Financial services, AtonRâ Partners 

Companies mentioned in this article:

BoughtbyMany (not listed), BusinessComparison.com (not listed), Claimable (not listed), Flock (not listed), Slice (not listed), and Trov (not listed) 

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