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With record-breaking investments nearing $1 billion in Q2 of 2017 — a 248% jump from Q1 of 2017 — the insurance industry is on the cusp of disruption, with many InsurTech startups looking to challenge the way it is managed, purchased and payed out.
What is InsurTech all about?
Many times industries are disrupted to the chagrin of the incumbents, and that’s exactly the case with the insurance industry.
While innovation and technology pushed other industries forward, the complexities of the insurance world coupled with the heavy regulation, high capital needs and overall complexity left the insurance industry largely untouched by entrepreneurship and fiercely lacking innovation – until now.
Taking inspiration from the FinTech revolution, the InsurTech community seeks to drastically transform the insurance world, and we believe that the time is right for such a disruption.
When it comes to flipping the insurance industry, people are left wondering how long will it take for the world to adopt the innovations, how deep the disruption will be and how the new technologies will impact enterprises that currently dominate the insurance scene.
Demand for Insurance Disruption Coming From all Fronts
Often-confused consumers, excessively high profit margins for large insurance firms and the adoption of digital processes in other sensitive industries made many wonder why the insurance industry wasn’t being disrupted.
This put increasing pressure on insurance companies to modernize, and made way for a complete disruption of the industry.
As with other industries, the ones to start the disruption were startups that developed open source, easy-to-use and easy-to-scale solutions that radically challenged what people thought of traditional insurance.
As a result, many new players have become dominant forces in this industry, challenging the enterprises and big insurance incumbents who have been enjoying higher than average profit margins and routinely breaking profit records.
While the startups are the ones who are making the disruption possible, consumer demand is actually what is driving it forward more than anything else.
Consumer demand is what's driving disruption in the insurance industry more than anything. Click To TweetUntil today, consumers found that despite paying high premiums each month, when they needed to make a claim to their car insurance, health insurance or life insurance companies, the paperwork was never ending, the response time was embarrassing and the payout for claims took months on end.
The slightest possibility of change in any of these areas has increased the demand and accelerated the adoption of innovation in the insurance industry.
Challenging Traditional Insurance Models
The startups who aim to disrupt the insurance world are not just digitizing a paper-based industry – they are integrating entirely new models that suit the needs and demands of modern consumers.
A Forbes review of the industry revealed that insurance companies in the U.S spent twice as much on advertising in 2016 than they did on innovations, and had an average of three duplicate processes in each insurance sale. Startups on the other hand are leveraging big data to quickly make decisions, automating quotes and claims, using AI in communication with customers and using real time IoT sensors to optimize BI.
Beyond reducing the time it takes to process new and existing customers, integrating technology into the insurance industry improves overall efficiency and reduces costs — savings that are then transferred onto the customer. The end result is higher profit for startups and lower costs for insurance customers – a true win-win that disrupts the entire industry.
Forbes: In 2016, U.S. insurance companies had an avg. of three duplicate processes per insurance sale. Click To TweetOne InsurTech startup, Lemonade, which has secured more than $60 million in four investment rounds, already showed how much automation and AI can impact insurance when they broke a world record and paid out an insurance claim in three seconds. Beyond paying out a single claim in record time, the Lemonade model disrupts the traditional insurance model by taking a flat fee when denying a claim, as opposed to pocketing the difference and adding it to their profit line.
Challenges InsurTech Must Overcome
As with all tech revolutions, InsurTech has several challenges they need to overcome before truly transforming the market.
While FinTech may have paved the way in many aspects, insurance is a much more emotionally driven industry, and people often need to interact with their insurance company when something goes wrong. As a result, ensuring trustworthiness will be increasingly important for InsurTech companies who try to convince consumers to pick a new tech company over an established firm.
Beyond the adoption of customers, InsurTech also has to deal with the innovation that the insurance companies will surely launch to market after feeling the pressure from the startups. Not wanting to die out like their finance firm counterparts who did not innovate, many enterprises in the insurance world are already building accelerators and acquiring innovative technologies in order to beat the InsurTech startups to the punch.
Startups and Enterprises Can Thrive Together in InsurTech
The way to ensure a win-win for InsurTech startups and industry enterprises? Collaboration!
Startup CoverWallet collaborated with Starr and AIG to pilot their digital commercial insurance solution for businesses on a large scale. CoverWallet CEO Inaki Berenguer emphasized that the right partnership is key to affecting change in such a traditional industry.
“Given the intense regulation in insurance, finding the right partners and hires with domain expertise is a critical part of successful industry disruption.” — Inaki Berenguer, CoverWallet CEO
The way we see it, InsurTech is going to disrupt the market faster than expected thanks to the precedents and great strides made by FinTech, HealthTech and other disruptive technologies.
