Insurance: An Industry Ripe for Disruption

As we move into a world of self-driving cars, drone delivery and virtual reality, disruption surrounds us. Over the last few years, there has been an increase in disruption to the financial services industry with FinTech startups attempting to change the way investing, lending and saving work for the average consumer.

Now, startups are shifting their focus to finance’s unsexy cousin — insurance. InsurTech (Insurance + Technology) has recently grown in popularity with CB Insights reporting $4.7 billion invested across 470 deals from 2011 to the third quarter of 2016.

Why Insurance?

Huge Market Opportunity. The global insurance industry collected $4.6 trillion in gross premiums in 2015. The net premiums written in the US totaled $1.2 trillion.

Unchanged Industry. There has been little innovation in the insurance industry with few changes over the last 30 years. The biggest players have been around centuries and still use many of the same business models and cumbersome claim processes involving a lot of paperwork.

Low customer satisfaction and high turnover rates. The insurance industry (excluding healthcare which is tied to the length of employment) has generally had a high turnover rate with customers being extremely price sensitive and looking to switch providers every few years. Additionally, the biggest players in the industry tend to have some of the lowest Net Promoter Scores indicating customer dissatisfaction.

Future Trends

Consolidation of InsurTech Companies. Currently, all the major players InsurTech industry focus on narrow verticals within the industry or geographically. As these players get more established, we can expect the eventual creation of a full-service InsurTech company.

Partnerships with and Acquisitions by Traditional Insurance Companies. The complex nature and regulatory concerns within the insurance industry will result in several InsurTech companies partnering with established players to manage risk and financing. Traditional firms will benefit from access to traditionally under-insured and hard to reach audiences.

Integration of Technology. InsurTech startups will leverage P2P and Blockchain to provide innovative and more competitively priced solutions to consumers. Mobile and technological solutions will increase transparency and streamline processes to shop for insurance and process claims.

Customized Insurance Experiences using Data from Wearables and the Internet of Things. Insurance and actuarial sciences are data driven. Access to new data from wearable technology and the internet of things will allow InsurTech and traditional insurance firms to re-calibrate their risk and pricing models and provide a more customized insurance experience.

Creation of New Segments. As InsurTech tries to reach under-insured audiences and apply technology to the industry, new types of insurance might emerge to cater to more niche segments.

This is first part on a series of posts on the InsurTech Industry. Part two will cover the emerging companies in the field of InsurTech.