By Dennis Grönger, January 21st, 2018
Investing in a start-up can feel like an investment in the future. This is especially true if the start-up is an InsurTech, with the combination of insurance and technology promising innovation and fancy new technologies at the same time.
Shadow Foundr, with good reason, tells its investors that they need to understand a business before making investment decisions. This article’s intention is to help you do the same when considering an investment in InsurTech.
Reason 1: Insurers are under pressure to ‘go digital’ but most of them won’t achieve this on their own
Insurance companies world-wide are having to rethink their business models – whether it is because of ongoing cost pressure, increasing regulatory requirements, or generally lacklustre financial performance. In fact, the same goes for the whole financial industry in general, but in comparison to other financial service organizations, insurers have been slow to embrace digital technologies. More precisely, they are so far behind that they don’t even believe an innovation from within would be the right approach to solve their problems, as demonstrated by a survey.
Reason 2: The next wave of new InsurTech start-ups will be big
InsurTech is widely seen as the younger sibling of FinTech, the technological innovation in the banking sector. The first recognizable FinTech start-ups appeared in 2010, while the first wave of InsurTechs started around 2015. Global investment in FinTech reached more than $30bn in 2016, while investment in InsurTech was less than $2bn.
The reason FinTech is so far ahead originates in the 2008 financial crisis. Banks faced a regulatory tsunami following the crisis and the outcome was a huge opportunity for innovative FinTechs who could navigate their way in this new world. Since the situation in the insurance industry is not significantly different from that of banking, the chances are that good InsurTechs will take off much like their FinTechs counterparts.
Reason 3: The insurance value chain is full of opportunities for InsurTechs to do things better
The insurance industry is one of the last in which companies are still doing most of the value chain on their own. They are doing it with 25+ year old legacy systems and as a result are missing numerous opportunities. For instance, a typical European motor insurer needs to spend 99 cents of each $1 on claims. About a third of this sum are expenses for handling claims. Transforming this into a full digital process could reduce these claims-related expenses to at least 80 cents of each Dollar.
Reason 4: Insurance markets are saturated, so new growth needs to come from a totally new customer experience
“If you want to grow your business then make sure your customers are your fans!” The list of famous companies which have proved the veracity of this statement is endless but there won’t be many insurance companies among them. But in the future, you can expect to see a lot of InsurTechs appear on such a list. InsurTechs like Lemonade for instance:
Using their AI technology and anti-fraud algorithms, Lemonade can pay a claim in three seconds! Claimants simply open an app on their mobile phone and describe the incident on camera. Lemonade’s claims bot reviews what was said about the claim and how the customer said it, and seconds later the claim is paid.
Reason 5: New visions are on the horizon
Sometimes it just takes a simple piece of software which meets the customer’s desire for simplicity to revolutionize a whole industry. ‘Thinking outside the box’ companies like Amazon, Uber, Airbnb, Netflix, Spotify and others were able to offer a revolutionary new way to bring suppliers and customers together. They have invented digital marketplaces that make it easier for all parts to come together. The future of banks, insurers, FinTechs and InsurTechs might also lie in such digital marketplaces. The first FinTech and InsurTech start-ups have already set out to build these kinds of platforms.
InsurTech is not going to disappear any time soon; it is going to transform the insurance industry! With their desire to embrace new technologies and to build products and services which are totally focussed on the customer, InsurTech start-ups will cause a stir in 2018 and beyond.
Dennis Grönger is a strategy advisor for start-ups and an insurance expert based in Hamburg, Germany. He has 20+ years of experience in insurance and banking with a special focus on InsurTechs and FinTechs.
Learn more at www.dennisgroenger.com