Advent of Insurance

Insurance is typically considered to be one of the most traditional industries in financial services and until recently, has proved to be fairly resistant to change. But changes in consumer behaviors, new technologies and emerging business models are disrupting the industry.

Now let’s look at how the insurance industry has changed in recent years.

 

The insurance industry is an enormous market with approximately $5 trillion in premiums globally, where even the largest players represent only a few percentage points of the global premiums. While the insurance market has long been stable and steady, companies are embracing new technologies and new data sources—think chatbots, telematics, drones, wearables and social media—that enhance their capabilities to acquire customers and underwrite and administer policies. Second, changing consumer preferences and the rise of the direct-to-consumer model are creating a new class of full-stack insurance startups to provide a more efficient, transparent and mobile-friendly way of selling policies to customers at a lower prices and providing customers a better experience—a trend that is putting more pressure on the traditional players  to embrace change.

Now the question arises- how is the insurance industry dealing with these changes?

 

in just the last year, the Insurtech sector globally has attracted more than $7 billion in funding and investments from venture capital and other institutional investors. The incumbents, for their part, are investing anywhere from ~$100 million to $300 million into their own corporate VC funds that are dedicated to taking minority investments in Insurtech startups with the goal of forging strategic and commercial partnerships. While some traditional insurers are acquiring startups and some are incubating their own direct-to-consumer start-ups, many more are partnering with them. As Insurtechs continue to scale, we expect to see more activity in the space.

Now how are this Insurtech startup using the data differently from that of traditional players?

 

Insurtech companies are able to utilize technology in more ways than traditional insurers. Insurtech companies don’t just collect data, they integrate and connect the millions of data points they collect with the acquisition, underwriting and administration of the policies they write. This enables them to focus on increased personalization and greater accuracy and speed of service. Many use artificial intelligence and machine-learning technology to analyze the data they collect and offer deeper insights on an individualized basis. Insurtech companies have developed ways to leverage data from every interaction they have with a customer to improve upon the way traditional carriers typically rely on variables that often categorize consumers into demographic cohorts. As a result, Insurtech companies are able to offer better value for their products and services—tailored for a specific individual.

But how are this Insurtech startups giving their user a different using experience which traditional players with deep pockets not able to give ?

 

The answer is pretty simple because they are not burdened by legacy infrastructure and disconnected platforms. This allows them to truly leverage next-gen technology to quickly launch new (and, importantly, regulated) products that address customer needs and preferences. There’s a huge flywheel effect: If you can treat the customer well—for example by helping process claims quickly and transparently—and deliver specific products that they need, then they will stay on the platform. This allows insurers to collect more data, which helps them provide a better experience and create tailored products, and ultimately allows them to grow fast. While Insurtech companies are still young, the flywheel that empowers their business model allows them to generate strong customer retention and presumably decades-long customer relationships. Additionally, Insurtech companies have mobile-centric or digital-first customer acquisition capabilities (in both personal lines and small- and medium-size business commercial lines). This has a two-pronged benefit: first, it creates a frictionless and even enjoyable customer onboarding experience and, secondly, companies see a material savings because these policies are sold directly instead of through an agent that is paid a commission on each policy sold. Over time, this will create a cost-to-acquire and cost-to serve advantage, allowing Insurtech companies to efficiently grow market share.

But how do Insurtech startups address the capital and regulatory requirements?

 

Insurtech companies typically rely on reinsurance arrangements that allow them to use a third-party balance sheet and remain capital light. Reinsurers that work with these Insurtech companies are leading global reinsurers who, like traditional insurance companies, want to participate and invest in this space. And while some have expressed skepticism about an Insurtech company’s ability to quickly and accurately underwrite risk, the fact that these companies are continuously improving their unit economics while improving their loss ratios indicates the model is working.

 

Now the time will say whether both the traditional as well as new insurance company operate in a collaborative manner or prey for each other’s flesh. But this will be a win win situation for the consumer as they will have more options to choose from.

 

References:- www.jpmorgan.com , www.metlife.com , www.acko.com , www.policybazaar.com

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