Introduction to Insurtech: Business Models, Challenges, Trends, and Prominent Examples

Introduction to Insurtech: Business Models, Challenges, Trends, and Examples
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Insurance is one of the most conservative industries, so it comes as no surprise that it has been slow in adopting innovation. However, just as fintechs are shaking up the banking and financial services industry, insurtech companies are starting to disturb the insurance world. Today around 86 percent of insurers believe they should innovate at a rapid-fire pace to keep up with increasing demands and maintain a competitive profile.

In 2019, the global investment in the insurtech industry reached $6.37 billion, demonstrating a 63 percent year-over-year funding growth. Moreover, we witnessed a 90 percent rise in the size of investment rounds that surpassed $40 million. All this implies that the sector starts to mature, and insurtechs are quickly turning into front-runners in their relevant areas and locations.

Keep reading to learn more about the use of technology in insurance, its impact on the industry, and how you can seize the moment to gain the lead.

What is Insurtech?

The term ‘insurtech’ derives from the combination of two words — ‘insurance’ and ‘technology’ — and it means the adoption of emerging technologies to improve industry efficiency and add value for the customers.

Currently, insurtech startups are fighting for their place in the sun with more accessible offerings, a higher speed of services, and better personalization. Applications for smartphones and wearables, solutions for automated policy management, accident handling software are synonymous with insurtech. And while some of them intend to displace the well-established insurers, others build ties with incumbents and enable their digitization.

Industry Under a Magnifying Glass: Five Types of Insurtech Business Models with Examples

At the onset of the so-called ‘insurtech movement’, startups used to focus on property and casualty insurance (P&C) and distribution, but as time went on, they’ve proliferated into many more areas. Today insurtech software companies can be found in all lines of business, and around two-thirds concentrate their efforts on the improvement of specific components of the value chain. The entire insurtech ecosystem already consists of hundreds of market participants that can be categorized into:

  • Direct Insurers/Tied Agents offer personalized, flexible, and cost-efficient packages with typically lower coverage and premiums. Such insurtech firms adopt technology innovations like IoT or Data Science, and their products can be easily purchased via a website or mobile app. In this category, you can find BIMA, Metromile, Trov, ROOT, Cuvva, and NEOS.
  • Insurance Management solutions focus on convenient tracking and administration of all your insurance policies and contracts in one place. Process-improvement insurtech products are FinanceFox, Brolly, Knip, Rentablo, and GetSafe.
  • Marketplaces/Aggregators are online platforms with numerous insurance products and companies that allow users to compare prices and terms. Examples include PolicyBazaar, CoverHound, Insurify, PolicyGenius, and Coverfox.
  • Peer-to-Peer/Cashback insurtech solutions allow individuals to team up and club their premiums together to hedge against risk and commonly derive benefits regarding premium proceeds. Some examples are Friendsurance, Guevara, Lemonade, Uvamo, and insPeer.
  • Sales, Marketing, and Engagement category comprises technology insurance companies that offer focused tools to industry-related third parties, including but not limited to brokers and insurers, mainly in the form of API or SaaS business model. These process modifiers utilize technologies to improve certain parts of the value chain leading to better user experiences and more fair pricing. Here you can meet such big names as Zywave, Welltok, KASKO, CoVi Analytics, Zipari, Qover, Dynamis, LifeDrip, and Sureify.

How to Retain a Competitive Edge or Key Technology Innovations Leveraged by Insurtech Providers

These days, game-changing insurance technology software solutions are centered around daily living needs, thus making consumer interactions more frequent and quality. The use of emerging technologies is at the core of the insurtech innovation program, which makes the development and deployment of value-added products and services more efficient, all while completely redefining user engagement.

No matter if you’re an insurer who wants to retain a market position or an entrepreneur who is set to establish a new insurtech company, the following tools can hardly be ignored. These insurance technology trends are already reshaping the industry, and they may help you break forth:

  • Artificial intelligence and machine learning are among the top trends in fintech mobile app development, and insurance is no exception. Communication with chatbots is now the order of the day. These digital assistants are available twenty-four-seven; they are cost-efficient and helpful. Nevertheless, only a few insurers augment them with machine learning. The combination of ML and AI in insurtech makes it possible for businesses to recognize and mitigate fraud, conduct KYC checks, automate claim processing, forecast demand, and potential future losses.
  • The Internet of Things devices — including wearables, smart appliances, and telematics — allow providers to monitor client’s driving habits, health concerns, household problems, and others. For life, home, and car insurance technology firms that means more precise risk assessment, better loss control, and more effective pricing management. Meanwhile, policyholders may benefit from streamlined processes, tailored offerings, better management of personal risks, and quicker checkups.
  • Robotic process automation was called one of the main insurtech trends in 2019, and it’s set to remain on the list in the years ahead. RPA is used by fintech, regtech, and insurtech companies mainly to automate repetitive high-volume tasks, reduce labor costs, and streamline business processes. However, this technology can also be applied to accelerate onboarding, underwrite policy renewals, and handle claims.
  • Blockchain technology in insurance is mainly utilized to enhance data security and build trust among all the parties of the contract, all while reducing operating costs associated with transaction processing. Insurtech blockchain startups leverage technology to free up human resources and make sure of prompt claims administration and reliable data sharing, particularly in case of cataclysmic events.
  • Advanced analytics is one of the key differentiators for the insurtech sector, and it’s right here to empower businesses to focus on the outcomes. In insurtech, data analytics is used to gain a better insight into customer needs, to create relevant products and services, to quickly process claims, and to do targeted marketing. In fact, all these are the means of becoming highly competitive.
  • Drones are mainly used by home insurance companies to examine real property assets situated in high-risk areas (natural disasters, lethal regions, and more). However, casualty insurtechs or car insurance businesses can also benefit from drones while recording or inspecting a road traffic accident scene.

What Is Open Insurance and Is It the Future of the Insurtech Industry?

The financial services industry has hit the headlines with the introduction of Open Banking and PSD2 regulations and the trend for openness and collaboration. However, this tendency is equally applicable to the insurtech market, though it has received scant international attention.

In this section, we’ll delve into the Open Insurance policy definition, its principles, and guidelines regardless of whether they’re looking to develop a niche mobile app or a fully-fledged plug-and-play insurtech ecosystem.

What is OPIN? — The Open Insurance Initiative (OPIN) is a set of standards that promote the use of Application Programming Interfaces (APIs) to make data and particular services accessible by third parties. Its main goal is to help insurers, agents, and customers do business in a new way, to speed up the development of mobile and web solutions, and to accelerate the integration of emerging technologies into the insurance industry.

Within this framework, APIs act as formal bridges that allow software engineers to connect specific technologies and applications, and enable their use in various business types, markets, and company sizes. A meaningful API strategy should ensure platform independence and allow any partner to interact with the interface, depending on their usage model and subscription plan. Moreover, APIs should be flexible and isolated, so if their functionality grows, existing partner solutions should stay unaffected and operate smoothly.

On top of that, API providers are required to:

  • follow RESTful principles which imply that functionality should be separated into distributed resources and be addressable with the minimum set of commands (GET, PUT, DELETE, and POST);
  • transmit data in JSON and XML formats;
  • encrypt the exchanged information, preclude data tampering and replay attacks;
  • consider innovative technologies and API styles to ensure better security and convenience for partners and consumers, including but not limited to blockchain protocols, Open Data Protocol (ODATA), GraphQL language, Hydra API project, and OpenAPI Specification.

Overall, the combination of robust security measures and flexible microservice architecture can help incumbents move beyond their legacy system impediments and morph into integral digital agents.

Public API standards are still to be elaborated and finalized, but the existing initiative is set to promote collaboration and inclusive contribution. Nevertheless, it’s believed that with available insurtech insights and global API unification, insurers will spend less time and resources on the development of reliable interfaces.

A Short List of Insurtech Unicorns: The Top Five

Over the last few years, the pace of insurance technology disruption has boomed. The number of top insurtech companies in 2019 reached 1544, with $29 billion in funding. The Dashdevs team has analyzed the market and picked out five unicorns that hold the potential to change the industry globally. The ranking is based on the amount of financing they’ve attracted throughout their existence:

#1 Clover Health

Total funding: $925 million

Clover is the San Francisco-based health insurtech that employs advanced analytics and extensive behavioral information to reduce spending, prevent hospital confinement, and gain better control over chronic diseases. It opens up the list of insurtech leaders since it brings technology into every facet of its customers’ healthcare. Clover plans start from $0 per month and include free gym membership, regular dental-hearing-vision exams, twenty-four-seven access to doctors, home delivery of prescription refills, in-home care services, and more.

#2 ZhongAn Insurance

Total funding: $831.6 million

ZhongAn is the first digital-only insurance firm in China and currently one of the biggest insurtech companies globally. It offers health, lifestyle consumption, auto, travel, and consumer finance coverage plans and numbers over 350 million customers. The underlying business model involves collaboration with product distribution organizations to market supplementary insurance. ZhongAn recognizes the importance of information technology in the insurance industry, and that’s why it invests heavily in artificial intelligence, automation, and blockchain technology to lower operating costs, all while improving customer service.

#3 Root Insurance

Total funding: $527.5 million

Root Insurance is the Ohio-based car insurance firm that believes that good drivers should pay less. It utilizes mobile technology to analyze driving habits and allows consumers to save up to 52 percent on their auto insurance. With a mobile app, customers can adjust their coverage at any time and place, improve their driving behavior and earn achievements, get discounts for referrals, or even submit a claim and spend only five minutes on that.

#4 PolicyBazaar

Total funding: $496.6 million

PolicyBazaar is the Indian biggest fintech and insurtech platform that focuses on health, life, travel, home, and car coverage. Its mobile solution allows customers to compare various insurance policies and financial products, as well as administrate and renew all their plans in one place. It also comes with a claim assistant, premium calculator, and hospital or garage locator. Moreover, this insurtech offers commercial insurance to cover risks that may hinder business growth.

#5 Lemonade

Total funding: $480 million

Lemonade is the insurtech NYC startup for homeowners and renters. It is powered by artificial intelligence and behavioral economics to digitize and improve the insurance-buying process. A claim can be filed via a mobile app where it’s immediately analyzed by the AI bot to either approve and pay it or pass it over to the humans. The application also comes with a built-in ‘giveback platform’ and enables users to donate the unclaimed money (up to 40 percent) to any non-profit organization. Additionally, Lemonade insurtech firm offers a fully-fledged REST API and so enables third parties to integrate insurance functionality into their apps or websites time- and cost-efficiently.

Insurtech Challenges and Opportunities: Where Is It All Going?

It’s inspiring to witness how insurtech is reshaping the insurance industry, and innovative customer-centered projects are taking on the market. Dashdevs takes an active part in the development of the new fintech sector, and we know that there is still a long way to go.

As we’ve already mentioned, the regulatory issue is one of the top priorities since policies should keep pace with fast-changing customer expectations, technology innovations, and market conditions. Regulations should promote collaboration, security, and sustainability to help startups mitigate risks associated with pioneer work.

Meanwhile, looking to win over a sophisticated audience, insurtech disruptors need to realize what problems they’re solving and how they should bill themselves. The core idea (mission) of your product should be reflected in all the aspects of insurtech product development, from design and technology selection to marketing and ongoing enhancement.

A thorough understanding of the market and great patience may sound obvious, but these are the passkeys on the way to success. For emerging technologies that lie at the heart of future insurance technology trends, legacy systems of industry incumbents may turn into unassailable walls. That’s why startups should take baby steps, be flexible, and assist insurers with their transformation journey.

Finally, it becomes challenging for startups to recruit and retain skilled people with agile spirit and the ability to deal with slow-paced decision making. For some teams and service providers, that may feel exhausting and unbalanced. At Dashdevs with work closely with both startups and medium-sized enterprises, providing insurtech technology consulting and app development services, and we have a good grasp of industry practices and workflow management. We are large enough to support your growth, but we stay small enough to ensure maximum flexibility.

Final Thoughts and Key Takeaways from the Insurtech Research

Insurtech rising opportunities and existing tendencies go far beyond simple functionalities or integrations. Insurers are expected to have a coherent innovation strategy and a well-established approach, where all team members know your business promises and are willing to work towards a common goal. Most investors and potential stakeholders use these principles as selection criteria, so having dozens of tempting possibilities, it’s critical to choose a clear way forward.

The importance of insurtech partnership cannot be overestimated. It allows incumbent insurers to integrate new technologies, add helpful tools, and broaden the range of products, all while avoiding the need to update the underlying obsolete system. Meanwhile, startups get an opportunity to carve out a niche and raise revenue. The selection of an insurtech partner is similar to the selection of an IT consultant, and it’s important to pay attention to the strategic relevance, shared vision, competency, and potential value for the company.

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