The following is a post written by Patricia Kemp (@_PatriciaKemp), general partner at Oak HC/FT (@oakhcft), a speaker at the CB Insights Future of Fintech conference in New York.
It is tagged InsurTech[1] and it has emerged rapidly as the latest and most disruptive technology vertical in the Fintech explosion. It describes and defines the growing number of startups emerging to transform what has been a hidebound $4 trillion global insurance industry. InsurTech has a promising future, but major challenges exist.
InsurTech primarily applies to property and casualty and, increasingly, life insurance. By one estimate, investments in the sector have surged from $740 million in 2014 to $2.65 billion in 2015[2] and over $4 billion already in 2016.[3]
Why the sudden interest in insurance? One major factor is the desire by consumers to get insurance coverage quickly, easily and transparently. They want to use their smartphones and digital devices to secure insurance that is customized, priced right and employs easy-to-use payment solutions. Another factor reflects a regulatory landscape that, while complex, isn’t the formidable barrier it is in banking.
The rapid increase in available software and systems, as well as the Cloud, to manage and analyze a veritable mountain of data enables insurers increasingly to personalize their products to customers. Technology also helps solve the industry’s huge need for talent; by one estimate, property/casualty insurers likely will face a shortage of 400,000 jobs by 2020[4] from retirements and little interest by millennials to enter the industry.
Consumers Demand an Easier Insurance Journey
This promises to greatly satisfy consumers who seek transparency and a smooth insurance journey from an industry that has never made it easy for them to grasp. In a 2015 survey, IBM found that only 43 percent of insurance customers trust the industry, a lack of faith that has remained fairly constant since 2007 when IBM began its surveys.[5]
Enter perceptive technology developers and entrepreneurs who see a lucrative market and are generating InsurTech startups to meet those needs. They are developing software and systems that help insurers find and court customers through customized offers, help them easily pay for their coverage, make the claims process quicker and painless and deliver customer satisfaction throughout. The tech advances also help them streamline their front- and back-office operations and make them more efficient.
Two early pioneers were Esurance, which in 1999 became the first insurer to operate exclusively online and paperless, and Guidewire Software, a Foster, Calif., software developer serving the property/casualty field since 2001. Guidewire delivers core processing, data and analytics and digital engagement to 200-plus insurers in over 20 countries as well as over 300 products.[6] But it suddenly has lots more competition as tech startups gain traction serving insurers.
Impressive Startups Making Waves in Life, Property/Casualty Fields
In the life insurance area alone, eight startups have been touted as reviving that sector, which had historically been hindered by complex products and purchasing and what industry experts consider a dying distribution model. Some of the new vehicles aim to fix those weaknesses, including Ladder, which uses a mobile app to provide consumers easier and faster access to term life insurance, and Insquik, which offers sales agents the ability to create their own online stores and automatically offer $350,000 in term life insurance to large pools of consumers.[7]
My venture capital firm, Oak HC/FT, focuses on Fintech and is supporting inventive insurance startups that will enhance the insurance ecosystem. Two notable firms we have invested in are Insureon – a tech-enabled marketplace and sales platform that enables carriers to serve and distribute insurance directly to micro, small and medium-sized businesses – and Trov Inc., the first global on-demand insurance platform that seeks to insure any item for any duration via mobile phone.
InsurTech isn’t without significant challenges, not the least of which is incorporating tech-related digital channels into the tradition-bound and relationship-based industry. In a recent survey, 70 percent of insurers said they’re still learning about digital and over half said they didn’t have operating models that can incorporate digital.[8]
Despite the industry’s slowness in accepting InsurTech, carriers have seen the future. They also have just witnessed the tip of the tech-related iceberg. InsurTech is a whole new world. And Lloyd’s of London after 200 years as a marine insurer, issued its first automobile policy in 1904, look for technology-enabled companies to create the next wave of insurance innovation.
[1] Matteo Carbone of Bain Financial Services practice, “A Mental Framework for InsurTech,” insurancethoughtleadership.com, April 19, 2016. http://insurancethoughtleadership.com/a-mental-framework-for-insurtech/
[2] Matthew Wong, CB Insights analyst, quoted in “How Will Lending Club’s Problems Affect 2016 Fintech Funding,” Investor’s Business Daily, May 25, 2016. http://www.investors.com/news/how-will-lending-clubs-problems-affect-2016-fintech-funding/
[3] Streisfeld, Matt, “Innovation is coming to insurance,” Oak HC-FT. http://oakhcft.com/press/
[4] Open letter by CEO Dan Glaser of Marsh & McLennan, CEO Brian Duperreault of Hamilton Insurance Group and CEO Inga Beale of Lloyd’s of London, Duperrealt, Brian, Hamilton Group CEO in an open letter, November 2015. http://newsrack.royalgazette.com/doc/newspaper/6a2d16c2a7/page-2.html?type=royal_gazette, page 11.
[5] Kesterson-Townes, Lynn, “Do You Trust Your Insurance Company,” IBM Commerce Blog, Sept. 22, 2015.https://www.ibm.com/blogs/commerce/2015/09/do-you-trust-your-insurance-company/
[6] Guidewire website. https://www.guidewire.com/
[7] Radin, Amy, “8 Startups Aiming to Revive Life Insurance,” Insurancethoughtleadership.com, April 13, 2016.http://insurancethoughtleadership.com/8-start-ups-aiming-to-revive-ife-insurance/
[8] Gallagher, Damien, “The Future of Insurance (Infographic), insurancethoughtleadership.com, May 27, 2016. :http://insurancethoughtleadership.com/the-future-of-insurance-infographic/