The Animal Called InsurTech


My first encounter with the animal was about a year ago and since then it has grown on me. When I look back and understand it better now, I find it only natural that I am smitten by the InsurTech bug. A fellow actuary, an information and communication technology engineer, a millennial who has been in (re)insurance space for over a decade is indeed a perfect prey for the bug!

[This is the first blog on InsurTech which would be followed by series of insightful articles.]

So, what is InsurTech and when was it born?

The term is used to describe an entirely new industry that includes tech-driven startups and have found a way to disrupt the insurance market place. Following is the more formalised definition from Investopedia

“Insurtech refers to the use of technology innovations designed to squeeze out savings and efficiency from the current insurance industry model. Insurtech is a portmanteau of “insurance” and “technology” that was inspired by the term Fintech. The belief driving insurtech companies is that the insurance industry is ripe for innovation and disruption. Insurtech is exploring avenues that large insurance firms have less incentive to exploit, such as offering ultra-customized policies, social insurance, and using new streams of data from internet-enabled devices to dynamically price premiums according to observed behavior.”

While it is hard to put finger on the first tech-startup in insurance space, it is believed that Friendsurance was among the first start-ups to transform the insurance market. The Berlin-based start-up founded the first peer-to-peer insurance in 2010. The idea was inspired by a small group of people who supported each other in the event of a loss.

That’s fine but how big is the InsurTech industry?

As per one of the recent studies, there are over 1,000 startups that constitute the global InsurTech industry. The only aim being to disrupt the traditional insurance industry. Collectively, they are backed by $18 billion dollars of funding and there is lot more coming! The following graph highlights the rapid growth in financing

Is that good news or bad news for the traditional insurance industry?

In spite of the amount of funding and promising future of InsurTech there are only a few with insurance licence. This can be attributed to the fact that while most startups are good at what they do, they lack the underwriting knowledge. Additionally, there are barriers to entry because of huge capital requirements for an insurance company coupled with stringent regulatory restrictions.
While InsurTechs may not necessarily be a threat to traditional insurance companies (at least not yet), they have tremendous potential to add efficiency in the insurance value chain. There are quite a few (re)insurers who have collaborated with /supported InsurTechs in recent past. Some of them include
• MunichRe coming together with Trov, an innovative insurance company targeting the unlocking of the millennial market by offering “on-demand insurance for the things you love” through mobile devices
• Swiss Re in its interesting InsurTech accelerator program identified 6 startups who were given access to company’s global pool of mentors, resources and operational support.
• UnitedHealthCare and Qulacomm collaborated a few years ago to offer cheaper health insurance to their policyholders who are investing in their health

Recap

InsurTech has arrived and it is here to stay. While traditional insurance companies may feel the heat, the trick lies in collaboration. The customers are sure going to be most benefited both in terms of convenience and cheaper insurance products!