Headlines about the insurtech disruption are split between issues like improvement to the customer experience and how traditional carriers expect to be affected. The situation is reminiscent of the days when Wal-Mart announced that a store was coming to a small town, and local retailers began screaming that the sky was falling.
We keep a close eye on insurtech at WeGoLook because, as a leader in the gig economy, we find natural partnerships abundant between our on-demand workforce and innovative insurtech services.
According to PwC Global, many insurance carriers see the potential downside to ignoring insurtech:
- 48% of insurers fear that as much as 20% of their business could be lost to insurtech startups within the next five years;
- Annual investment in insurtech startups has increased fivefold over the past three years, with total funding reaching $3.4 billion since 2010; and
- More than two-thirds of insurance companies say they have taken concrete steps to address the challenges and opportunities presented by insurtech.
Will incumbent carriers accept the anticipated losses or will they fight to retain market share?
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The Standard Market’s Reaction
Traditional insurers have begun to throw a lot of money at the insurtech situation. Many of them have significant venture capital funds.
These steps are not necessarily being taken to compete with the startups that are expected to capture the 20% but to retain control over methods of distribution.
Even though insurtech startups appear to be better than incumbents at creating products and distribution systems, many still rely on their insurance partnership with standard carriers for underwriting and claims administration. New pay-per-use companies such as Metromile and Simplesurance, which are not regulated insurers, sell policies that are underwritten by established insurers.
A Threat to Distribution
Insurtech startups will take a significant bite out of the traditional insurance distribution system. Startups and incumbents will be forced into partnerships because both are vital to delivering products.
Insurers are certainly not blind to the opportunities that have become available as a result of technology that will allow them to learn more about the consumer experience and how the consumer behaves.
And this is a good thing!
If incumbent insurers can embrace and adapt to the innovation, creativity and agility of the startups, the insurance industry will be better positioned to meet the needs of the consumer.
The newly created partnerships are destined to make significant progress in solving the problems of the new economy and bring consumer-centric innovative products to the marketplace.
The New Competition Partners
Some of the startups that have already succeeded in taking a bite out of the traditional distribution system:
Founded in 2012 with $750 million in venture capital, and one of the first to establish its presence, Oscar was created as a result of the Affordable Care Act. Oscar relies on technology and data so it can improve the healthcare it offers to customers. With annual revenue of $200 million, the company is currently valued at $3 billion.
See also: Top 10 Insurtech Trends for 2017
Also founded in 2012, Trov is a U.S. startup funded with $46 million. The company was established to sell insurance by the piece.
The company will provide insurance on a per-item basis and offer policies on a term selected by the consumer.
Although founded in the U.S., the company first marketed its innovative product in Australia and targeted millennials. Like most other startups, the company partnered with a traditional insurer to handle the underwriting.
PolicyGenius is banking on consumers’ preference to have all their insurance products in one place and online.
The company was founded in 2014 with $21 million in capital and has partnered with major traditional players such as Axa, Transamerica and MassMutual.
As a virtual online insurance broker, PolicyGenius intends to make a dent in the insurance distribution system through satisfying the preferences of the consumer.
San Francisco-based Metromile has created disruption in the auto insurance market by offering pay-per-mile auto insurance.
Through the use of an innovative app working in concert with the Metromile Pulse plug-in, consumers who use their vehicle on a limited basis will obtain significant savings on auto insurance.
The company offers a full customer service team and 24/7 claims service. All policies are underwritten via its partnership with National General Insurance Company (formerly GMAC).
After promising to reinvent the insurance industry, Lemonade offers home and renters insurance by using bots instead of brokers.
After testing the product in New York, the company launched nationwide in 2017. As licenses are approved on a state-by-state basis, the Lemonade footprint will continue to grow.
Unlike traditional insurers, Lemonade charges a flat-fee commission and then gives back unclaimed money to charitable causes that policyholders care about.
See also: Why I’m Betting on Lemonade
Lemonade is a perfect example of how insurtech startups are revolutionizing the insurance industry.
But There’s Hope
Although the threat of losing market share is demonstrated by the success of many of the insurtech startups, it’s important to recognize that a relationship can manifest that benefits both traditional insurers and the innovative startup.
New business for one startup doesn’t necessarily mean a loss for another.
Also, traditional insurers are already positioned to raise the additional capital needed to compete with the startups — if they choose to do so.
So, will the 20% market loss actually be realized?
If we play our cards right, probably not.