Insurtech refers to the use of technology innovations designed to squeeze out savings and efficiency from the current insurance industry model. Insurtech is a combination of the words “insurance” and “technology,” inspired by the term fintech.
The belief driving Insurtech companies and investments by venture capitalists in the space is that the insurance industry is ripe for innovation and disruption. Insurtech is exploring avenues that large insurance firms have less incentive to exploit, such as offering ultra-customized policies, social insurance, and using new streams of data from Internet-enabled devices to dynamically price premiums according to user behavior.
This approach does, of course, result in some people paying more than they should be based on the basic level of data used to group people. Among other things, Insurtech is looking to tackle this data and analysis issue head-on. Using inputs from all manners of devices, including GPS tracking of cars to the activity trackers on our wrists, these companies are building more finely delineated groupings of risk, allowing products to be priced more competitively.
The seeds for amalgamating insurance and technology were sown in the late 2010s. Insurtech today has matured into a lucrative business for insurers as well as intermediaries. The global Insurtech market grew exponentially from $253 million in 2016 to $2.27 billion in 2020 and it is expected to grow annually at a rate of 48% from 2021 to 2028.
The pandemic saw business reeling due to lockdowns, but it also made the need for insurance more evident than ever before. Insurance companies were able to make pandemic-specific products and bring them to the market quickly by partnering with Insurtech intermediaries. The insurance industry saw a growth of 7% globally in 2020.
Traditional insurance companies have been leveraging the expertise that Insurtechs have with Artificial Intelligence, Machine Learning, and the Internet of Things to create new and lucrative products for their clientele. The 2021 World Insurtech Report predicts that most insurers will stick to their core business of underwriting, product creation, and claim management while all other functions will be outsourced to Insurtech partners.
Insurtech players have started making progress into other business avenues by offering need-based insurance products with a small ticket size. Businesses add value to existing product lines through the benefit of insurance while customers are delighted that their purchase is covered. This has gone a long way to increase average order values and to increase customer retention.
The relevance of Insurtech can be felt now more than ever as the way we look at insurance has changed. Insurance is no longer just for mitigating risks in the distant future, but its benefits can now be felt in real-time thanks to Insurtech companies. Partnering with insurers and businesses across sectors will encourage innovation in this space and fill more gaps in the market. Insurtechs have not just survived the test of time but have thrived and they are poised to bring more value propositions to the market.