Insurtech has been a buzz word in the industry for several years now. Originally, the term was used to label insurance start-up companies that were disrupting the status quo and incumbents. Think of Lemonade out of New York and Trov out of San Francisco. Without legacy systems and distribution, these challenger brands leveraged the latest digital technology to deliver lower-cost operating models and enhance online customer experience, with expense ratios typically 50% lower than market.
As head of operations managing sales, service, digital and claims at Coles Insurance, I witnessed the first true insurtech challenger in Australia that reached scale. Australia is the most direct insurance market in the world. Coles, one of the two largest supermarket chains in the country, launched its insurance proposition in 2010 and was one of the fastest international auto and home insurers to reach 400,000 customers. It was a low-cost operation with expense ratios and claims handling costs materially below the market, which allowed reinvestment into marketing and competitive pricing.
In 2011, a little over $100m was reportedly invested in insurtech. Just three years later, this had risen to approximately $800m and by 2016, it had grown to over $2.5b. Nearly a decade later, it has reached $6.39b, according to Business Insider. Without a doubt, this is only going to continue to grow exponentially.
The Evolution of Insurtech
Today, insurtech is more about technology companies enabling the insurance industry in their digital transformation. In my view, it’s not necessarily related to insurance-specific technology, but how technology can help the sector.
To be fair, some of the original insurtech start-ups have become players in their own right; however, few have had any major impact on market share. This is partly because many are owned by market leaders and have used a more defensive dual-brand strategy. Examples include Inshared, owned by Achmea in Holland and More Th>n, owned by Royal Sun Alliance in the UK. Esurance was another company that used a dual-brand approach but has since been integrated back into the Allstate mothership. In the UK, Aviva has its Digital Garage to help transform insurance by using data and technology to understand consumer behaviors and remove pain points.
As a low engagement category, it can often be challenging to encourage customers to switch carriers. In Australia, where I am based, as few as one in five customers reportedly shop around every year at renewal time and even less actually switch insurers. While traditional wisdom suggests there is a flight to quality during economic downturns leading to less switching, COVID-19 may pull more customers to these innovators who provide a superior digital experience to most incumbents.
Insurtech Companies to Insurtech Solutions
Many insurtechs that started as insurers have pivoted to provide solutions to other insurers. Trov began offering insurance for key personal items such as laptops, smartphones, bikes, etc. The insured could choose insurance for specific items via a smartphone app, depending on the coverage needed. Trov now claims to be a world leader in insurance technology, powering digital insurance solutions for innovative businesses in the finance, insurance, mobility and retail sectors and enabling the new ways people live, work and move.
If you look closely at the ways in which technology can make a difference to the insurance industry, it is not hard to see the ongoing growth opportunities. These include digital claims solutions, customer engagement platforms, pricing capabilities, big data, marketing data, telematics … the list goes on. New developments in robotics, true artificial intelligence (AI) and 3D imaging are expected to provide further tech solutions for the industry.
Partner, Not Build
In my view, the real value of insurtech has yet to be fully realized, as we see a culture shift to a “partner, not build” mindset. Large insurance companies have traditionally struggled with the concept given their need for total control, ownership and leveraging their internal IT resources. However, this approach is clearly changing, with additional pressures coming from COVID-19 to reduce costs, fast-track digital transformation and deliver contactless solutions to drive better customer experience.