How is insurtech being viewed in today’s market? Pretty well if investment is an indicator. Insurtech is the form of financial technology (fintech) receiving the most investment according to Insurance Day. Investors in 2016 poured more than $1.7 billion into insurtech startups worldwide. The KPMG/CB Insights joint report, “The Pulse of Fintech,” defines insurtech as “companies creating new underwriting, claims, distribution and brokerage platforms, enhanced customer experience offerings, and software as a service to help insurers deal with legacy IT issues.” This report shows that 60 percent of VC-backed insurtech deals occurred in the U.S. during the second quarter of 2016, but the U.K. is also an important leader in the insurance space for health, auto insurance, comparison websites and data management.
If this is not enough to convince you, Accenture found that insurtech investment in the U.K. has surged three-fold in just a year. The company’s latest data revealed Britain’s insurtech investment has rocketed to more than $20.3 million as of August 31. Evidently, years of nervous inaction and indecision have been washed away by a wave of innovation and the growing knowledge that external forces will disrupt the insurance sector if the sector doesn’t take the initiative to get more current.
Founded by a combination of ex-insurance professionals frustrated by a slow-moving industry and tech-specialists with an eye for an opportunity, insurtech is tackling the industry’s most difficult issues. Peer-to-peer insurer Lemonade is making the process of buying insurance and filing claims more transparent, promising to pay claims almost immediately. A mobile app by Verifly lets you purchase drone insurance. Companies such as Trov and Back Me Up are offering greater personalization, allowing customers to just insure certain belongings rather than paying for a broad policy.
Other organizations such as Brolly are using data and artificial intelligence to improve customer service and more accurately calculate premiums. Long term contracts are also on the way out. Cuvva is providing car insurance by the hour, and Digital Risks offers subscription business insurance designed for the needs of fast-growth tech and media companies.
This dramatic growth in insurtech looks like it will continue in 2017. Entrepreneurs, investors, insurers and other players in the insurance industry will intensify their efforts to bring innovation and modernization to the sector. These developments will affect every part of the insurance industry – especially personal lines – from sales and marketing through underwriting to claims administration.
Along with this growth, there are hurdles to overcome. In the U.S., state laws and regulations will require a rethink to avoid stifling innovation. Many these laws and regulations were formulated to address the sale and administration of insurance in ways that will cease to be relevant. In the long run, insurtech developments might even create pressure for greater federalization of insurance regulation. Because the new technologies will have a greater nationwide reach, state-level regulation of insurance in the U.S. may become increasingly difficult to administer.
Hurdles are also being surmounted in Singapore, where one very significant development is taking place. Regulation that has proven to be a brake on insurtech development is set to change in 2017, with the Monetary Authority of Singapore’s introduction of its fintech regulatory sandbox. This will enable financial institutions, including insurers, as well as technology companies, to experiment with innovative financial products or services in the marketplace. This experimentation will be allowed within a well-defined space and subject to appropriate safeguards to ensure potential negative consequences are contained.
If you are one of the many customers who has been frustrated by the snail-like pace of innovation in the insurance industry over the years, the emergence of insurtech provides welcome relief. While there will be some growing pains to endure with this component of fintech, the possibilities it presents far outweigh pains encountered to realize them.
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(Photo: Insurance, Pixabay)