What Is Insurtech?
Inspired by fintech, insurtech is the use of innovative technology within insurance to improve savings, maximise efficiency and enhance consumer experience. In general, the insurance industry is regarded as antiquated compared to other financial sectors, like banking, where technological uptake has occurred at a far greater pace. In recent years however, insurtech has grown exponentially, disrupting conventional business models.
Insurtech allows products to be priced competitively, by leveraging advanced technology such as artificial intelligence (AI), robotics and sensors, and machine learning (ML) to process real-time data quickly and accurately. This enables insurance firms to personalise their products based on consumer habits, drive down costs and mitigate insurance risks.
The Growth of Insurtech
Before the widespread use of technology, signing an insurance policy entailed meeting with a broker or financial advisor in person to discuss various plans and their related costs. For many years, policies were bought and sold in this manner. Insurance companies with legacy models are still largely based on this formalised and often lengthy transaction, despite moving online. Recently, insurance firms have been under pressure to adapt and quickly, to meet the demands of the tech-savvy consumer, who in every aspect of their lives, desires a slick and effortless technological experience.
Insurtech has revolutionised the insurance sector, providing quick, simple, and inexpensive coverage by utilising sophisticated technology. Since its inception in 2010, insurtech has expanded significantly and is now expected to grow annually at a rate of 41% between 2020 and 2023. In a similar way that fintech has witnessed large disruptors like Monzo and Revolut transform financial services, insurtech startups are upending traditional business models.
Looking at the growth of insurance firms over the last year, there has been a sizeable expansion of startup insurtechs like Zego, iptiQ and Digital Re. In particular, Zego has recently secured the largest funding round of any startup, amounting to $150m and making it the first UK unicorn insurtech – with a valuation of $1.1bn.
The adoption of advanced technology has not only allowed insurance firms to cater to their consumers evolving tastes more effectively but has allowed companies to scale up their business processes quickly and successfully. Due to the global pandemic, there has been a clear shift in the global insurance market, where companies with legacy infrastructure have fallen behind and find themselves having to adapt quickly, while insurtechs have thrived in an increasingly digitised world.
Zego, as mentioned above, is an insurtech company reimagining commercial motor insurance. Identifying an opportunity to power other emerging businesses, such as uber and Deliveroo, Zego offers flexible insurance to self-employed drivers and riders, as well as entire vehicle fleets. The insurtech company utilises advanced technology and various data sources, such as telematics and sensors, to offer insurance products at competitive rates.
Ingeniously, Zego offers fleet businesses usage-based insurance (UBI) – a flexible and cost-effective form of coverage meaning you are only insured when on the road. This pay-as-you-method is typically controlled by using real-time tracking data via mobile apps. These policies can be bought and put into effect in under a month, or sometimes as little as week, saving a business time and money.
Since Zego’s inception in 2016, the British startup has secured a European license and provided over 17 million insurance policies, covering more than 200,000 vehicles in five different countries.
Launched in 2012, Bought by Many is another key disruptor in the insurtech market. Initially, Bought by Many offered a unique group buying model – similar to Groupon – allowing those with niche interests, such as exotic pets, to band together and earn discounts on insurance policies. In 2017, Bought by Many launched its pet insurance which has proved more than popular with consumers.
Bought by Many are still one of the main disruptors within the insurance market, utilising advanced technology and consumer data cleverly to improve customer satisfaction and make the buying process more transparent. Still growing, the insurtech has recently announced its launch of pet coverage to the US, under the brand name ‘ManyPets’. In 2020, Bought by Many secured one of the largest funding rounds of any insurtech, raising a total of $97.75 million. The company has raised $165 million to date and has doubled its headcount over the last year, now employing more than 230 people internationally.
Created in 2016, iptiQ is a digital startup backed by Swiss Re designed to deliver personalised insurance through a B2B2C model. Using the power of cloud-based applications, behavioural science, and real-time data, iptiQ works to make buying insurance easier and more transparent. The startup provides insurance by working with various partners, enabling iptiQ to deliver digital insurance via trusted brands without traditional insurers having to develop their own digital infrastructure.
IptiQ has found success by using a consumer self-service model, that allows the customer to modify their insurance policy quickly. By working with a diverse range of partners, including retail, banking, and non-financial companies with valuable customer data, iptiQ is able to cross-sell insurance – providing a tailored all-round service directed at the modern consumer. The company is now active in 10 countries and has more than 475,000 policyholders.
Criticisms of Insurtech
While insurtechs have made progress in bringing the insurance sector up to date, they are still relatively new to the market and face problems with consumer uptake. Traditional insurers that still use a legacy business model have the benefit of established relationships with their customers, supported by brand recognition. With consumers still sceptical about buying insurance online, insurtechs must continue to demonstrate their unique consumer benefits, while building trust. That said, this prejudice within the market may dissipate as the younger generation, who have grown up dependent on technology, reach an age where they look to purchase insurance.
While innovations in the insurance industry have enabled firms to create more accurate underwriting and tailor consumer experiences throughout the value chain, they do raise a question-mark concerning regulatory practices and compliance. Officiating bodies are reluctant to create new regulations purely for the insurtech model, firstly because they are so new to the market and secondly because previous regulations have worked so successfully for older business models. The ‘sandbox’ concept, originally developed in the UK, could be the answer to this problem – providing a space that allows firms to monitor and supervise innovative business concepts prior to launch, without the fear of regulatory reprisal.
The Impact of Covid-19
The global pandemic has only quickened the rate of technological uptake, in turn heightening consumer demand for polished and effortless online experiences. With digital interactions, and crucially transactions, becoming the new norm, insurtechs have thrived over the past year, delivering customisable, quick, and cost-effective coverage via multiple online platforms.
Comparably, for legacy carriers COVID-19 has demonstrated that they must adopt a proactive and bold approach to innovation, or risk falling behind. According to a Deloitte survey of insurance industry insiders found that 79% believed COVID-19 had exposed gaps in their companies’ digital capabilities and strategies. Comparably, insurtech startups’ fluency in AI, data analytics and digital infrastructure caught the market’s attention, with investments in such companies surging to 71% in Q2 2020.
For established reinsurance firms, supporting innovation in the insurance industry by backing startup insurtechs is vital in order to remain relevant and secure new business. The digital transformation occurring in the insurance industry will only happen at a greater rate in the future, therefore it is essential that legacy carriers embed themselves in emerging startup ecosystems in order to gain and utilise valuable digital infrastructure and consumer data – viewing insurtechs as future partners and not competitors will be crucial to nurturing this dynamic.