Insurtech, short for insurance technology, is a new wave of disruptive innovation in the insurance industry. In the same way that “fintechs” changed the landscape of the finance sector, insurtechs have positioned themselves as alternatives to conventional options for consumers. Consequently, they’re poised to be a growing challenge, threat, or opportunity for established firms in the years ahead.
How do insurtechs work, exactly?
Insurtechs have begun to operate at almost every level of the insurance world, disrupting conventional processes with new or unique approaches to customer experience, risk assessment, policy provision, and even crowdfunding risk. They are as different from each other as they are from the incumbent companies in the industry. However, there are three traits which are common to all insurtechs:
- They have a specialized focus
Virtually every insurtech startup targets a tightly-defined, specific aspect of insurance. For example: providing consumers with price/cost comparisons for all available plans, or offering very competitive rates for a single type of insurance (such as home insurance, or health insurance). In essence, the traditional aim of being a one-stop shop for multiple kinds of resources and coverage is antithetical to the insurtech business model.
- They employ technology-driven solutions
These new firms are built around using cutting-edge technology. For example, instead of using broad risk categories and actuarial tables to assign policy rates to policy-seekers, insurtechs have been using machine learning and data from people’s smart devices (such as GPS, etc.), to generate much more accurate assessments.
- They’re (relatively) small-sized and agile
The lightweight nature of these companies gives them an edge in terms of responding to changes or opportunities in the market. Insurtechs exist in the digital sphere, and enjoy much lower operating costs and ease of scalability when compared to incumbent firms.
What makes insurtechs different from traditional insurance providers?
Consider, for a moment, the changing criteria modern consumers have for selecting a product. They are increasingly brand-agnostic, displaying more interest in products that are easy to access, use, and understand. Younger, tech-savvy consumers are also disinclined to deal with customer service representatives and agents, preferring digital interaction from the comfort of a smartphone or computer.
That’s where insurtechs come into the picture: with their technology-driven, digital-first, customer-centric models, they’re perfectly poised to deliver the experience customers demand. In addition, they’re adaptable enough to tweak that model as preferences change.
But more importantly: insurtechs are willing to pursue opportunities which larger, established providers may be unable to. For example, companies such as BeSure leverage crowndfunding to “collectively protect” things conventional insurance allegedly can’t or won’t cover (like broken smartphone screens) by creating “risk sharing pools”. Conversely, companies like Lemonade in the US combine insurance with an element of “social good”, by charging a flat fee and investing any leftover money from premiums in charities or non profits selected by customers (once re-insurance fees and claims have been paid out).
Because the business model for an insurance startup is so lean and flexible, success isn’t tied to conventional processes in the same way it is for established firms, allowing entrants to chart new paths for profit and growth.
Does that spell the end of conventional insurance?
No, not really. The largest portion of insurtech companies are focused on offering insurance comparison, not replacing incumbent providers. If anything, their business hinges on the ongoing existence of traditional firms. On the other hand, insurtechs who provide competitively priced, specialized policies have to rely on larger, established firms to underwrite the policies they offer. Moreover, regulatory-barriers are a concern as well, even with relaxed requirements for these new companies.
That’s not to say that incumbents are safe from losing their market share—far from it. It’s just worth noting that this isn’t a case of rapid redundancy for existing insurers, but wasted potential if companies don’t act now. There’s actually plenty of scope for collaboration and innovation for companies with an eye on the future. Instead of digging in their heels and refusing to adapt, insurers need to compare their services and capabilities to those offered by insurtechs and ascertain where they can innovate or forge partnerships.
Certainly, companies with the foresight to evolve with the rapidly-changing insurance landscape (such as FCT) will benefit from the disruption. Otherwise, it’s simply a case of adapt, or be left behind.
Freelance writer and communications professional at the University of Toronto. He’s an avid cinephile, voracious reader, and a terror at karaoke bars.