New players in insurance are harnessing technology to suit a new generation of consumers, promising to shake up the industry.
Insurance is a multi trillion dollar industry and has shown steady growth and stability other industries only dream of. Success came despite its perception as being sluggish and slow to adopt new technology.
But there is change in the air. New players are harnessing technology to suit a new generation of consumers, promising to shake up the industry.
Since 2013, new tech startups decided it was time to shake the industry up, believing Insurtech belonged up there with FinTech, Medtech, EdTech and the likes - where tech was already transforming the business.
That’s when the likes of Hippo, Lemonade, Root and Oscar Health gained investor attention en route to realizing the tech dream: automate, remove bottlenecks, market to a new generation, boost operational efficiency, sell more insurance, price it better, improve margins, and then IPO. The promise was clear. These next gen companies would beat the established players at their own game by being smarter, faster and more in touch with customer trends.
Riding on enthusiastic investor sentiment, things were headed in the right direction. After rounding up money and scaling, In 2020 Lemonade and Root went public. They were followed by Oscar Health and Hippo in 2021. But after an impressive start, all four companies saw their value slashed by ~80% over the past year.
Investor disappointment from insurtech has been the subject of many articles. It’s always important to see the entire picture, and focus on the positive.
Risk is evolving rapidly. Insurance companies have the formula down for established risks: the nature of drivers has changed little over the past decades, neither has the risk factor for earthquakes, or the perils impacting homeowner and car insurance. But there’s still plenty to gather and learn when it comes to new risks, like cyber crimes and IT downtime. That’s precisely where technology can fill in the gap, add value and complement existing approaches.
The space created by tech companies is the space traditional companies are transitioning into. New players are more aware of the current digital risks which have greatly impacted commercial insurance.This puts them at a tremendous advantage.
In order to make a difference and succeed, new players must offer alternatives, or complement traditional insurers. They need to better gather and analyze huge swaths of data to monitor, track and quantify risks more accurately. This effort should then translate into new insurance products, improved processes, or an ability to repackage existing policies under simple, parametric models that demonstrate better economics. It can also mean improving margins, or making services more accessible in new markets.
Whatever it happens to be, new players will need to prove value. The era of fast, premature IPOs is likely behind us. New providers will need to demonstrate actual, data-driven results. Showing potential or being novel is no longer enough.
But the insurtech train has left the station. Consumers and businesses around the world have plenty to gain as the industry redefines itself, improves, adapts and future proofs business to meet both yesterday’s and tomorrow’s challenges.