What Is Insurtech?

What Is Insurtech?

Let me explain what insurtech is: it's the application of technology innovations aimed at squeezing out cost savings and efficiency from the existing insurance industry model. Think of it as a mashup of 'insurance' and 'technology,' much like fintech in the financial world.

Key Takeaways

You should know that insurtech focuses on using tech innovations to streamline the current insurance model. By incorporating tools like data analysis, IoT, and AI, it enables more competitive pricing for products. It also helps in processing claims more effectively, evaluating risks, handling contracts, or underwriting policies. Insurtech mirrors fintech in how both use modern solutions to revolutionize their traditional industries. However, insurtech companies face challenges like regulatory issues and resistance from established insurers to collaborate.

Understanding Insurtech

Insurtech is built on the idea that the insurance industry is ready for innovation and disruption. It's exploring areas that big insurance firms aren't motivated to pursue, such as ultra-customized policies, social insurance, and using data from internet-enabled devices to price premiums based on actual behavior.

In traditional insurance, some people end up paying more than necessary because of basic data grouping. Insurtech directly addresses this by improving data and analysis. It pulls inputs from various devices, like car geolocation trackers or wrist activity monitors, to create more precise risk groups, leading to competitively priced products.

Beyond better pricing, insurtech startups are experimenting with game-changers like deep learning AI to replace brokers and find optimal policy mixes for individuals. There's also interest in apps that consolidate policies into one platform for easy management, on-demand insurance for short events like borrowing a car, and peer-to-peer models for customized group coverage with rebates to encourage good choices.

Note that insurtech shares many goals and methods with fintech, as both industries are seeing major process overhauls through technology.

Importance of Insurtech

Insurtech is crucial in transforming how insurance coverage is applied and paid for in several ways. It improves the customer experience by using technology to engage you more in selecting coverage, understanding your needs, and getting personalized service. Instead of visiting a branch or calling a rep, insurtech shifts toward self-serve online options where you choose your engagement channel.

It boosts efficiency, allowing you to research and explore options via the internet and apps without waiting for business hours or available reps. Many insurtech firms empower you to access information quickly, cutting through bureaucratic processes.

Insurtech stresses individuality through innovative data gathering and processing, providing tools to better grasp your true needs. This leads to improved pricing and more reliable coverage based on historical data.

It offers greater flexibility with customized, short-term, or transferable plans, so you don't have to commit to long-term deals but can get specific coverage for specific needs over set durations.

Insurtech cuts operating costs by moving away from physical locations and manual labor; companies operate remotely, engaging customers globally with less overhead, similar to online business models.

It can reduce fraud by using data, analytics, trend analysis, and machine learning to spot inconsistencies and close loopholes that might be exploited.

What Insurance Areas Does Insurtech Solve?

Insurtech tackles several key areas in insurance. In claims management, it moves from manual reviews to automated processes that detect fraud, aggregate data, validate claims, and pay out with minimal human input.

For underwriting, it involves assessing your profile and risk to offer packages with premiums and coverage details. Much of this data is gathered automatically, using historical comparisons and learning models to decide on policy extensions and fair pricing.

In contract execution, insurtech handles tasks like payouts, tier changes, policy closures, or approvals using blockchain for smart contracts that trigger automatically when criteria are met, removing human bias.

For risk mitigation, big data analyzes your historical activity or claim types to detect fraud, avoid unsuitable risks, and identify exposure areas.

Fast Fact

According to Grand View Research, the insurtech industry was valued at $5.4 billion in 2022, with a forecast of $152 billion by 2030.

Innovations Driving Insurtech Change

A range of evolving technologies is changing insurance through insurtech. Artificial intelligence and machine learning allow tasks once needing humans to be tech-only, like chatbots answering questions or models predicting premiums based on data feedback loops.

Automation ensures efficiency; when you fill out forms online, they're stored and policies compiled automatically without manual intervention.

Big data involves collecting vast, real-time information to analyze customer risks and habits, feeding into predictive models for millions of users.

Blockchain provides immutable ledgers for secure record-keeping and smart contracts that activate under specific conditions.

Drones assess properties and damage in unsafe areas, relying on high-quality photos and videos for claims.

The Internet of Things connects physical devices to software, like auto trackers that monitor driving to adjust premiums based on habits.

Fast Fact

According to Hourly, there were 3,475 insurtech companies in 2023, up from 1,500 in 2018.

Insurtech Companies

Here are some real insurtech companies innovating the field. Lemonade sells coverage directly via a mobile app for renters, homeowners, pets, and auto, with all claims processed digitally without brokers.

Dacadoo uses devices like phones and smartwatches to build real-time risk profiles, adjusting based on lifestyle changes.

Bdeo employs AI and chatbots for claims, guiding you on info submission, with computer vision to reduce evaluation errors.

Etherisc uses blockchain smart contracts that auto-execute based on third-party data, like processing agribusiness claims on weather events.

Avinew offers lower premiums for safe driving tracked by onboard IoT devices, rewarding less risky behaviors.

Criticism of Insurtech

While these innovations are needed, traditional insurers resist due to heavy regulation and legal complexities. They've survived by being cautious, avoiding startups, especially in their stable industry.

This resistance is an issue because many insurtechs need traditional help for underwriting and managing big risks. As insurtech gains consumer traction with user-friendly models, incumbents might buy in.

Privacy is another concern; devices tracking stops, locations, and durations collect personal data that some find intrusive compared to insurtech benefits.

What Does Insurtech Mean?

Insurtech combines 'insurance' and 'technology' as an emerging field using innovations to alter traditional insurance practices.

Is Insurtech a Component of Fintech?

Insurtech and fintech are separate but similar in using modern solutions to revamp services, though insurtech sticks to insurance without branching into finance.

How Does Insurtech Make Money?

It profits from low overhead and efficiency, earning from clients while cutting costs by ditching offices and automating tasks, allowing lower prices.

Is Insurtech Better than Traditional Insurance?

It depends on preference; some like personal agent interactions, others prefer app-based self-service. Insurtech just provides a different delivery method.

The Bottom Line

Technology is disrupting traditional insurance via insurtech, offering new ways to gather data, execute contracts, and analyze info more accurately. While it might reduce personal touch, it aims for lower, custom, flexible coverage.