Insurtech Startups Making Insurance Easy
Insurtech is a term applied to many segments of new technology that are disrupting the insurance space: smartphone apps, consumer activity wearables, claim acceleration tools, individual consumer risk development systems, online policy handling and more. While Fintech has an impact on almost all different financial services, insurance has lagged behind but is catching fast. There are over 1500 companies covering the entire ecosystem of insurance. US has been the pioneering market for insurtech followed by UK and Germany. Asia-pacific region accounts only for 14% of insurtechs but is also the fastest growing region.
Companies such as The Floow, BoughtByMany and QuanTemplate are demonstrating that technology can disrupt the insurance industry. AXA is one of the large incumbent insurers, having launched Kamet, a €100 million accelerator program aimed specifically at InsurTech entrepreneurs, following the trend 12 more such accelerator and incubator programs were launched in the Insurtech space.
Black Box Insurance, based on telematics data (an insurance program that offers premiums based on current driving behavior as opposed to historical performance. Black box insurance aims to match motorists with personalized premiums according to their driving performance.) has become a mainstream product for young drivers, fueling the growth of companies such as InsureTheBox(UK), which sold 75% of the business at a valuation of around $200 million in 2016 and Marmalade(UK). USA is the largest auto market in the world and all top 10 auto insurers have telematics program to offer. Most of the insurers claim that over 70% of their telematics customers save money. The Indian government has mandated public vehicles with more than six-seater capacity to have vehicle tracking devices. IT majors Cognizant, Wipro and Infosys, already have the know-it-all given that they have been providing telematics solutions to foreign insurers like AIG, Allianz, AXA and Munich Re for close to a decade. These IT companies have now shifted the focus to local Indian market due to the increasing interest by the local insurers.
Challenges & disruption in the ecosystem:
The back-end software and underwriting of the traditional insurance companies are tied into legacy software from previous decades, with major system integration challenges. Insurers also have very little contact with their customers, contributing to low brand loyalty and retention.
It is an exciting time in the insurance industry globally, however, several obstacles are present :
- Regulatory Issues: Insurance is a highly regulated industry, and regulations vary by country (and by the state in case of the U.S.). You also need to understand a different set of accounting standards and terminologies.
- Capital: Once you get through the regulation, you need to prove that you have the balance sheet to be able to pay up for claims in any eventuality. This requires serious capital before you can write your first policy. For instance, in India, the minimum paid-up equity capital for life or general insurance business is Rs.100 crores. The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs.200 crores.
- M&A with incumbents attractive but difficult: Both of the above make it near-impossible to start fresh unless you can raise an Oscar Health-like $1 billion-plus. Any other Insurtech start-up is going to need to partner with existing insurers. This presents a number of challenges and limits flexibility & scalability.
- Historical data. If you are going to get into underwriting insurance, you need historic claims data on which to base your decisions. However, this data is privately held by insurers. Building up enough data over a long enough time frame (given that claims are infrequent events) is a real challenge. Data is the oil of the 21st century. Without it, there is a danger of start-ups mispricing risk. At the same time avoiding cybercrime and data breaches has become a key concern for any organization in this industry.
- Also the macroeconomic & market challenges and lack of relevant products to the changing customer needs.
These obstacles are forming a challenge in the growth of this sector. Collaborations with the Insurtechs is enhancing established insurers’ capabilities. Thus resulting in the rise of the market confidence as the number of Insurtech startups have grown to 37% annually from 2014 to 2018. Insurtech firms have caught eyes of the venture capitalists by leveraging their strength to enhance customer experience, introducing technology-based disruptive business models and also to some extent streamlining the existing cumbersome process. According to incumbents surveyed for the World InsurTech Report 2018, more than 75% of incumbent insurers said they consider Insurtech collaboration as a way to improve their customer experience competencies. Other vital collaborative benefits would include faster time to market (59.5%) and building new digital capabilities (46.8%). Some of the preferred approaches to Insurtech collaboration are through partnership to develop new solutions or by purchasing their solutions as a service, purchasing white-labeled solutions from Insurtech firms, making financial investments in startups, or sponsoring Insurtech incubator or accelerator programs. The savvy insurers and Insurtechs that will find the right partners to strategically collaborate with would be most be successful.
Technology as most of the sectors has an impact on the aspect of insurance. Distribution was the first part of insurance to be disrupted, with insurance comparison engines, which was further disrupted with mobile-first distribution models. On the underwriting side, there is a huge volume of new data available (telematics, mobile phone, health tracking, etc.) which leads to decision making. Smartphones allow a much more efficient and pleasant claims experience. Various technologies that have brought about the disruption are 5G, artificial intelligence (AI) and machine learning (ML), augmented and virtual reality and next-generation cloud services such as edge computing. Insurtech brings in some disruptive forces like mobile, cloud, cybersecurity, social, big-data/machine learning, usage based insurance, IoT, roboadvisory, bloackchain, P2P, gamification and micro-insurance.
In a report published by PwC, Insurance 2020, Turning change into the opportunity they have explored five STEEP(Social, Technological, Environmental, Economic and Political factors) drivers to identified 32 factors that are believed to have an impact on the insurance industry.
STEEP analysis by PwC identifying 32 factors that are believed to have an impact on insurance industry.
There are many more opportunities to use connected hardware to refine insurance: wearable technology and analytics can combine to create compelling wellness programs for healthcare. These programs, in effect, enable insurers to manage the risks they are writing — by rewarding good behavior and penalizing bad behavior; smart homes for home insurance, mobile phones for almost anything. There is also the opportunity to use people’s online presence and social networks to reduce fraud and (possibly) improve underwriting.
A few examples in this area:
- Climate Corp: Collecting weather data with high precision, offering farmers crop insurance and in-depth analytics. Agriculture in India is highly susceptible to risks like drought and flood. The use of technology such as 3D imaging and crop simulation modeling can increase accuracy in the measurement of weather and crop yields, and in reporting and verification. Along with this drone usage is predicted to make claim adjusters’ workflow 40-50% more efficient.
- Metromile: is a San Francisco-based car insurance telematics startup that offers pay-per-mile insurance and a driving app by using your smartphone to collect data, and insurance rates are broken into two parts: a base rate and a per-mile rate, typically a few cents per mile.
- Yulife: is a lifestyle insurance company that offers a game based wellbeing app based on artificial intelligence (AI) and behavioral science which encourages employees to take care of their physical and mental wellbeing and receive rewards. Yucoin can be exchanged for rewards including Asos vouchers, Avios points as well as NowTV passes.
Reinventing the insurance experience:
This is a broad category, including changing how claims are handled, how insurance is sold and how it is bundled with other services. Digitalization allows customers to fragment their insurance cover and select only the bits they are really interested in.
- Wrisk: Founded in 2016, Wrisk provides a one-stop-shop insurance app, covering almost everything from technology and cars to jewellery and furniture. The app works by offering customers with a Wrisk ‘score’ which is formed by providing a range of information such as your address and other things which could affect your premiums. Wrisk customers will be able to get multiple items insured from one provider rather than numerous vendors. Payment works on a monthly auto-payment plan, so customers aren’t locked in to a year’s insurance.
- Cystellar: UK startup Cystellar is a cloud-based big data analytics platform, built to improve data-driven decision making. Cystellar’s platform also provides predictive analytics to sectors such as agritech, foodtech and insurtech, particularly helping insurers and their clients avoid damaging events. Cystellar offers unique services satellite imagery and IoT together with drone-based surveillance to integrate the information. The startup also offers AI-based decision support tools to minimise the complexity of data and calculations, which are currently piloted by reinsurers and satellite data providers.
- Spixii is an automated insurance agent which essentially lets you buy and manage your insurance through a chat interface. Spixii designs white-label chatbot technology to help insurers protect and engage customers, personalising their experience.
- Laka : London-based startup Laka has built a community-based model for bicycle insurance. The monthly maximum is fixed at around £18, but that comes down depending on how many claims are filed by the wider community. Fewer claims means lower premiums for everyone. Each policy comes with no excess, 60 days of travel insurance, a new for old replacement policy and roadside support.
- ThreatInformer: Cyberattacks are a feature of modern life. To help drive down insurance costs, many companies are keen to know how they can improve their systems are services. An example startup in this space is ThreatInformer. The company provides cyber risk intelligence to the insurance industry. The firm creates tools for users to transform the way risks are written, using a security-as-a-service platform. The aim is to use productive analysis of security assessments and environmental factors to enable business users see the full risk picture.
Insurtech in Agriculture:
In India, the use of technology will be encouraged to a great extent by the new mandatory crops insurance scheme. Smart phones will be used to capture and upload data of crop cutting to reduce the delays in claim payment to farmers. Remote sensing will be used to reduce the number of crop cutting experiments. In Turkey, growers are registered, field’s location, size, crop variety and plantation date. Mobile apps, Plant growth simulation, Satellite images, IoT sensor stations, Machine learning, GPS tracking and Image recognition are used to improve agriculture in the country. In Russia, all National Association of Agriculture Insurers members have access to satellite monitoring since 2016. Canada has allowed drone use in agriculture for years; estimates say that farms will eventually account for an 80% share of the commercial drone market. In North America, roughly, 6 in 10 production farmers use various precision technology solutions in their farming operations. Precision farming technology is now helping to set the stage for crop insurance to be a more customized and individually farm rated insurance offering