The term ‘insurtech’ is a combination of the words “insurance” and “technology” and was originally inspired by the term fintech. Whilst there can be some confusion surrounding what insurtech actually means, at its core it refers to the use of technological innovations to create new solutions within the insurance industry.
A common question for tech founders to ask is ‘why insurtech?’ and the answer can be summed up in two simple words: innovation and disruption.
Insurtech by its very definition revolves around technological innovation and finding new, dynamic solutions to problems in the insurance industry. As such, the ways in which insurtech creators can specialise and dive deeper into problems often surpasses the capabilities of large insurance firms. Larger firms are less inclined to specialise and create highly customised policies. This is often because in order to specialise, a significant amount of research needs to be conducted to fully understand the market to then create and commercialise the offering. In the case of insurtechs, founders will often utilise different streams of data to dynamically price premiums according to observed behaviour. Simply put, they have capacity to do this research, find the specialised segments and then develop the solutions to match.
When evaluating how viable this method is, in Australia in 2019 71% of our insurtech businesses were either post-revenue or post profit, a significant increase from 50% in 2018. Clearly, the data patterns and solutions are working. This innovation space is still developing however, with Andrew Parton evaluating the situation suggesting “while insurers understand the potential of insurtech innovation, uptake remains inhibited by operational constraints, legacy systems, technological readiness, compliance issues and concerns of privacy and security.” This shows that practically insurtech solutions are still innovating, however the Australian ecosystem is still developing to help accommodate them.
Not only does insurtech push for new innovations within the industry, they disrupt common practices. According to the Accenture Research in 2018 insurance was the top-ranking industry for susceptibility to future disruption and of the 18 sectors studied, ranked as the fourth most disrupted sector. Because insurtechs are startups, they effectively function outside the standard insurance industry operations. As a result, they are able to use new technology such as blockchain which can positively impact their entire value chain and reduce costs. Benefits of using blockchain technology can include reducing admin costs while increasing pricing effectiveness and also improving fraud detection.
The methods insurtechs use to operate and apply their solutions also take a “first principals” and customer-centric approach. For example ‘instant claims’ are starting to gain traction with insurtechs using technology to create objective data sources that determine liability for instant claim settlements. UK based startup Flood Flash does just that by providing flooding insurance to those that were either denied coverage or felt premiums were too high. Their system involves installing a sensor at the required location and when floodwater reaches the pre-agreed depth, the agreed settlement amount is immediately sent to the policyholder. This way, claims do not require months of processing and damage evaluation before being approved.
Finally, within the insurtech and broader insurance industry there is increasingly a race for smarter risk modelling. Traditional insurers tend to use quite rudimentary models to evaluate potential customers and as a result tend to exclude those they deem too ‘high risk’. Insurtechs on the other hand tend to use higher-tech models and can more critically evaluate each person’s circumstances and often fill the gap to insure those left out by big insurers.
Through the combination of innovation and disruption, the insurtech sector is transforming the insurance industry by utilising technology to transform the customer experience by both increasing competition and simplifying policy management. As a result, the insurtech space gives tech founders a unique playing field to experiment in with their solutions.
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