InsurTech is now established in a class of its own, no longer a sub category of Fintech. In 2015, $2.65 billion of venture capital was invested in InsurTech. We now have InsurTech-focused accelerators, with the excellent Startupbootcamp in London, the Global Insurance Accelerator in Des Moines, Iowa, (about to start its second cohort) and Mundi Lab announcing its start-ups for its insurance program in Madrid.
In the past year, I have interviewed more than 50 InsurTech start-ups, and I have seen the full spectrum of characteristics and common themes that run through these innovative digital insurance businesses, which i call:
From Distribution to Data, the Spectrum of InsurTech
Red – Distribution
Distribution is all about making insurance easier to buy, consume and understand. Innovators put the customer first and build their insurance proposition from the customer out (unlike incumbents, which organize their business around internal capabilities).
These start-ups are all about the customer, and their propositions are characterized by convenience, on-demand, personalization and transparency (and, of course, digital).
- Bought by Many
Orange – Enterprise
Here we see a new breed of enterprise-class software providers. These are software as a service platforms running on the cloud. They have consumption-based pricing models that replace the traditional, million-dollar, up-front license fee and multi-year implementation.
In the main, these InsurTechs have taken hold of the small and mediums-sized business (SMB) space, but it is a matter of time before they prove themselves as genuine enterprise solutions for Tier 1 insurers.
Yellow – Mutual
New peer-to-peer business models return insurance to its roots of mutualization and community. The model relies on the notion that social grouping and affinity will change behavior and address moral hazard (thereby reducing claims payouts and premiums).
The question of scalability still hangs over P2P insurance, but, if it succeeds as a business model, it could form the foundation of a new breed of insurer. Just as kids call to their parents in their hour of need, customers will call to the insurer in theirs.
Green – Consensus
Blockchain technology will fundamentally change the way the insurance industry works (as well as banking and society as a whole, IMHO).
The promise is huge although as yet unproven. From smart contracts to identity authentication, from fraud prevention to claims management, blockchain technology will provide the underlying technology foundations for a trustless consensus that is transparent to all parties.
Blue – Engagement
For me, this is the most significant of the characteristics from InsurTech in personal lines. The product becomes integrated in the customer’s lifestyle. It becomes sticky and overrides the annual buying exercise, where price is the key buying criterion. Digital natives are responding well to lifestyle apps that sit on top of the underlying insurance product.
Indigo – Experience
The true value of insurance is only realized when the customer makes a claim. New tech solutions that improve the customer journey through the claims process will not only improve the customer experience, they will also reduce the cost of claims and claims payouts.
Violet – Data
This is all about new sources of data to rate and underwrite risk. This is about using data science, machine learning, artificial intelligence and high-performance computing to process data in completely new ways.
While distribution is vital to change the way customers interact with insurers, it is the data players that hold the key to fundamental change in the way insurance is manufactured, especially in personalisztion of insurance premiums and policies.
- Analyze Re
- Meteo Protect
- The Floow