Insurtechs are businesses, usually startups, that use technologically innovative apps, processes or business models to transform the way the insurance industry operates.
Insurtech emerged around 2010 as an offshoot of a similar endeavor in banking, called fintech. While still a small part of the insurance space, insurtechs are growing rapidly, and many traditional insurance companies are beginning to invest not only in startup ventures but also in developing their own technologies.
Some examples of insurtech operations include online policy and claims handling, automated compliance processing, individual consumer risk development systems and claim acceleration tools. Insurtechs leverage technologies such as smartphone apps, consumer activity wearables, artificial intelligence and big data. Many insurtechs are funded by traditional insurance companies as well as venture capitalists.
As the consumer market at large changed, becoming more digitally focused, more and more startups started to explore ways to exploit new technologies—such as smart phones, wearables, apps, telematics, the Internet of Things and sophisticated data analysis—to disrupt the traditional insurance model and the customer experience.
Furthermore, the advent of the peer-to-peer economy created a demand for new products to serve it, while a new generation of millennials, accustomed to an on-demand world, created a demand for a more seamless transactional experience.
Some early insurtechs include price comparison aggregators such as CoverHound, peer-to-peer insurer Friendsurance and on-demand property insurer Trov.
According to CB Insights, funding volume for insurtech companies was $312 million in Q3 2017, with 48 transactions, down from a record-level funding volume of $985 million in Q2.
Insurtech ventures break down across a couple of different lines. Some focus on the front-end customer experience, addressing areas of friction in traditional insurance transactions—the amount of time it takes to fill out an application is a classic example—and creating simpler, more streamlined processes.
Other ventures seek to reinvent certain back-end segments of business for the insurance industry such as how to write and price risk, perform loss control and settle claims.
The claims process is one that is particularly affected by developing technologies. Traditionally companies hired adjusters to determine the extent of the insurance company’s liability for a loss, damage or injury to the claimant, and come up with a settlement. Now, various new approaches are used to aid that process, often in combination with traditional ones. One example is the use of drones after a catastrophe to quickly survey damage, sometimes in areas that would be too difficult or dangerous for adjustors to reach. Another example: Auto insurance claimants can submit photos via app after an accident. And a third: Insurers combine artificial intelligence and numerous online datasets to detect potentially fraudulent claims.
As innovations get better at assessing and processing applications and claims, new insurance products can be developed. The Chinese company Zhong An insures against the cost of shipping an online purchase back to a merchant. And traditional products can be handled differently, such as purchasing auto insurance by the mile, with monthly billing that varies by the amount a person drives.
Front-end insurtech: CoverHound is a web-based comparison shopping platform for business and car insurance. It connects consumers with national insurance carriers and local agents.
Back-end insurtech: AirWare enables insurers to utilize autonomous commercial drones for rapid and safe collection of high-resolution imagery of properties for underwriting, loss prevention and claims inspection.
Front- and back-end insurtech: Lemonade sells renters and homeowners insurance exclusively online, with the application process taking only a few minutes. Claims can be processed rapidly, using artificial intelligence and behavioral economics. The company boasts the shortest time for resolving a claim ever: 3 seconds.
Insurers have always recognized the importance of innovation, but they face obstacles as one of the most heavily regulated and publicly scrutinized industries.
The industry has urged state insurance regulators to adopt legislation that would create “sandboxes,” wherein certain regulatory requirements would be waived for insurers looking to launch innovative insurance products, services and technologies to meet the need to adapt to a technology driven world.
While there are many benefits to these innovations, there are also concerns. Many insurtech ventures rely on the access to and use of private customer information, which raises issues of privacy and security. Some concerns have been raised about insurers' use of social media to 'spy' on their customers during the application or claims process.
Despite concerns, technological innovation in the insurance space is here to stay. According to the 2017 World Insurance Report, incumbents and insurtechs are increasingly discovering that collaboration offers a win-win path forward and that digital technology has become central to insurers' strategies.
PwC, "InsurTech: A golden opportunity for insurers to innovate," March 2016
McKinsey & Company, "Insurtech—the threat that inspires," March 2017
CapGemini and Efma, "World insurance report 2017", September 2017