The insurance industry has been witnessing massive changes on the back of powerful digitalization for the past few years. This has led to the surge of insurtechs, which combines the best of both worlds – traditional insurance and modern technologies. The global insurtech market size was valued at $5.45 billion in the year 2022 and is expected to grow at a CAGR of 52.7% from 2023-2030. One of the major reasons behind the growth includes the increasing number of insurance claims across the globe. The insurtech startup landscape is impressive as well, with plenty of opportunities for new players and insurtechs constantly experimenting with the latest tech.
Let’s delve deeper into what insurtech actually is and how the startups in the ecosystem are shaped.
What actually is insurtech?
Insurtech, a subset of FinTech, or financial technology, uses cutting-edge technology to enhance business processes, and improve efficiency and customer experience. The space has been witnessing interests from venture capitalists as well as it is well-poised to leverage disruptive and innovative technology. Insurtech also helps large insurance organizations explore new options apart from traditional human efforts. Insurance companies get access to data streams from IoT devices from insurtechs. Insurtechs help with dynamically priced insurance policies, social insurance choices, and small business insurance.
Related reading: The top 10 most promising insurtech startups of 2023
How insurtech startups are shaping up in this ecosystem?
In this quick-changing landscape, insurtech startups are testing the waters amidst potential game-changing companies. This involves the usage of deep learning trained artificial intelligence (AI) to handle the brokers and find the policies to complete a person’s coverage. The insurance industry is historically slow and costly, especially for people who cannot afford to pay for premium services. Startups are slowly changing the scenario by introducing the flexibility and transparency of digital technology. The pandemic has also contributed to the digital acceleration in the insurance space, thereby enabling insurtech startups to benefit from innovative digital-first products and services. For instance, Lemonade, an insurtech startup has launched a new auto insurance offering after the acquisition of Metromile. Traditional companies are also forming partnerships with insurtechs to own the inevitable disruption of the sector.
The evolving technology ecosystem is leading to fundamental changes in the insurance industry. Companies are looking for ways to adopt the lining of artificial intelligence and automation to enhance operations and offer a unique customer experience.
With the evolution of Artificial Intelligence (AI) and Machine Learning (ML), it has become easier to understand customer needs and customize products accordingly. These techs are aiding startups to improve the underwriting process and automate claims handling.
Insurance technology trends
Here are some of the technologies that are driving change in the space, which in turn address issues like underwriting, claims, etc:
Artificial Intelligence/Machine Learning: Artificial intelligence functions allow particular tasks that need human interaction to be performed exclusively reliant on technology. A subset of AI is ML, which involves the ability to extract historical data and compile predictive models. This is again used to distribute information.
Automation: Insurtechs change depends on efficiency. This means that when insurance customers fill out a document online, the record is stored automatically in a data warehouse or automatically compiled into a policy ready for signature. Automation tools are used to minimize manual human intervention when technological tools carry out a process on their own.
Big Data: Big data refers to the huge chunks of data and information. It includes the fast collection of real-time data, data sets, and more. It allows insurance companies to get hold of a wide set of data that is used to analyze the risk profile of a customer to understand the habits and traits.
Blockchain: We all have heard about blockchain in recent years. While it is mostly famous for cryptocurrencies, the basis for blockchain is immutable, distributed ledgers. It enables unalterable record-keeping and smart contract execution to stay on a blockchain, being dormant till certain conditions are met to release insurance proceeds or validate an insurance client.
Drones: While the concept is relatively new, drones can be used to understand and assess properties, check damages, or simply audit a site for a claim. Assessors are now depending on drones for high-definition photographs and videos.
Internet of Things: Another innovation that makes it to the list is the Internet of Things (IoT). IoT depends on the relation between software and physical goods. Insurers can now base premiums on the tiniest of details with IoT.
The importance of technology assessment for investors and insurers
Global insurance tech organizations are drawing hefty funding. In 2021, the amount surpassed $11 billion, double the amount invested in the year 2020. In the first half of 2022, around $8 billion was invested in global insurtech companies with 1,528 international investors participating in 521 deals. Investors from over 60 countries took part in this last year.
Investors interested in insurtech startups need to understand the core and adjacent markets in which they operate. It provides knowledge of the company’s value chain, market opportunity, potential and more.
Both investors and insurers should try to understand the risks and opportunities related to the investments in order to take the right decisions at the right time. Some factors that they need to pay attention to include the stage of development of the core and adjacent markets and the challenges to entry, etc. The potential for massive disruption in the legacy insurance space is the main reason why insurtechs are attracting investments. However, doing the right research is inevitable if you want to succeed.
To evaluate an insurtech company, there are several steps that investors and insurers need to follow.
· Researching & gathering information: This will provide you insights into the company’s products, services, and reputation along with the technologies that they use.
· Meeting with the company representatives: You need to know about the products and services along with technologies and compliance regulations.
· Testing and piloting the product or service: When you evaluate the technologies of an insurtech, you have to understand other factors as well such as financial stability, so that you understand whether it is worth your funding or not. It can provide insights into its technology as well as the ability to meet the requirements.
Insurtechs are the driving force of this evolution and venture capitalists are noting down the same. While the future prospects for insurtechs in the insurance space look bright, insurers and investors must dig deeper into the technologies that they use for the upgradation of products and services. This way, they will be able to understand the true worth of an investment.
The insurance industry is undergoing rapid changes with new players entering the market and consumer expectations evolving every day. At Netscribes, we understand the need to stay ahead of the competition, which is why we provide the latest market data and insights to help firms make informed decisions. Our competitive intelligence and in-depth technology assessment and analysis cater to your unique needs and keep you ahead of the game. Contact us.
Based on insights from Srijita Guha – Senior Associate, BFSI Team