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Insurtech: The Next Big Thing

Certainly, by now, consumers and members of the financial industry are paying close attention to fintech.

Merging finance and technology was destined to become a market disrupter as it speeds up the sale, application, and services associated with financial products.

Indeed, global investment in fintech companies stands at $50 billion, and is showing no sign of slowing anytime soon. 

But an offshoot of this disruptive trend is slowly affecting traditional insurance carriers as well.

Insurtech, or digital innovations in the insurance industry, is causing similar investment frenzies, with a total of $5 billion invested since 2011.

Guy Weismantel, of the Digital Insurer, provides a succinct description of insurtech and its effect on the industry:

“In an over-simplified world, many see insurtech as being the technology behind insurance. In the real world, however, insurtech is a term applied to the many segments of new technology that are disrupting the insurance space: smartphone apps, consumer activity wearables, claim acceleration tools, individual consumer risk development systems, online policy handling, automated compliance process, and more.”

And this is all for good reason. Here is why we should be playing close attention.

Combining Insurance and Technology

Following the sales and service successes introduced by fintech, insurtech has arrived to disrupt the status quo of the insurance marketplace, namely, auto and home insurance.

Also, what can work for auto and home, can work for basic commercial policies.

How the Disruption Happens

According to The US Treasury, assets for insurance in the US total over $8 trillion and the US insurance industry reported net premiums at $1.27 trillion.

This translates into a whopping 7% of our GDP!

That’s a tremendous amount of business coming from a distribution system that is considered to be old-school and cumbersome.

What happens when a technological newcomer enters the marketplace with a platform that improves distribution efficiencies? 

Insurtech newcomers are attracting the millennial and generation-x market segment by weeding out most of the cumbersome steps of purchasing insurance.

What happens is tech-based startups such as Lemonade and Metromile enter the marketplace and instantly begin gobbling up business.

In fact, half of traditional insurance players predict that they will lose 20 percent of their business to insurtech startups.

That's no small amount when we consider that insurance players reported over $1 trillion dollars of net premiums. 

Why Disruption Happens

Most consumers don't realize the ultra-thin profit margins insurers and agents realize after the sale of a policy. 

Disruption is event driven. When a market segment is ripe for a change in inefficiencies and a superior method of communication, technology finds an answer.

The steps in communication, application, policy issuance, and claims resolution can be arduous because of repetitive tasks throughout the process.

And guess what, millennials and gen-xers hate it.

Today, consumers want to be able to get educated, receive a quote, and purchase a policy from the comfort of their home, car, or a restaurant via their cell phone in a matter of minutes.

Just like fintech has disrupted and is transforming the financial world, insurtech has placed a bulls-eye on the insurance industry. When a large market segment is ripe for a change, disruption happens.

How Are They Doing It?

Implementing an attitude of startup, entrepreneurial thinking, and technology allows insurtech platforms to grow their customer base faster, and improve product delivery.

One of the primary reasons these new digital platform startups are so disruptive is their prowess in customer experience and engagement.

This is not to say that incumbents can’t join the fray if they’re willing to change their thought and operational processes.

Slowly and surely, traditional insurers will begin to understand why the comfortable market they enjoyed has been severely disrupted.  

Insurtech platforms will allow insurers and agents to run lean, and most importantly digital, marketplaces.

Who is The Beneficiary?

Anytime a market is subject to new technological business platforms, successes and failures are amplified and appear in shorter timeframes.

When consumers get what they want at an affordable price, they reward the provider rapidly. After the technological investments have been made, insurers and agencies will recognize sales increases and lower cost of doing business.

Consumers will benefit from dealing with a streamlined and informed purchase that takes only moments out of their busy day.

Costs will ultimately come down, as operational savings are passed on.

Insurtech technology will provide a clearer picture of consumer habits, which allows actuaries to determine a more accurate cost of claims.

Any Negative Impacts?

Certainly, insurance carriers who align their interests with those of the consumer will benefit from the idea of insurtech.

Industry incumbents who disagree and choose to stick with old-time product distribution are likely to witness an exodus of consumers who are fed up with traditional consumption models.

Insurtech companies like Lemonade have arrived and are gathering the millennials and generation-xers who are in distress and crying out for a better way.

For a case study, check out the simplicity of Lemonade's user-friendly business model.

Final Thoughts

Insurtech is the next big thing for the insurance industry and the market they serve.

Research conducted by SMA indicates that about 30 percent of insurtech players are focused on disrupting distribution channels. This is thanks in large part to the continued advancement in mobile technology. 

What are your distribution channels? And, how can they be affected by the above discussion?

The insurtech disruption turns traditional insurance sales and service on its head and can benefit consumers in a profound way.

Looking forward to seeing what big things come from insurtech in 2017.