FinTech companies and the disruption they are causing in the financial services industry have been the subject of an infinite number of events, talks, blog posts and newspaper articles in the last two years. However, the discussion tends to be focused predominantly on the banking sector. Very rarely do the InsurTech companies - those startups rethinking the insurance business model - get the exposure they rightly deserve. 

Part of the reason being that, according to CB Insights, investment in InsurTech ($2.65Bn) has only been a fraction of the broader FinTech investment ($15-20Bn) and the number of startups has been smaller so far. 

Another part of the reason is that the trust and loyalty in the banking institutions has never really recovered after the 2008 crisis, and talking about the “end of banking as we know it” is always going to capture the audience’s attention. 

I firmly believe that InsurTech companies will go on to have an even more revolutionary impact. This is because the innovative approach that some of those companies are taking will not only change the traditional way insurance companies have been engaging with their customers, but can also have wider and more profound implications on our life and society.

Changing our society, for good

The insurance business is based on statistic. Risk calculations determine the premium the customer has to pay depending on the likelihood that an event would happen and a claim raised. However so far this assessment has been guided by a set of data often limited and not precise. This situation has typically put the virtuous customer at a disadvantage vs. the more risky customers.

InsurTech startups are solving this inefficiency. We find telematics apps like MORE TH>N DRIVE which transform your smartphone into a tracking device that monitors your driving behavior. Companies like Wesavvy monitors your daily exercise level to offer you rewards and recommendation on insurance products. 

Other startups are focusing on defining more specific insurance products which are precisely tailored to the needs of the customers. For example Cuvva offers car insurance by the hour or Sure which sells life insurance only for the duration of a flight. BoughtByMany is an online platform that groups and offers products to multiple customers with a very specific insurance need that is not covered by the mainstream companies and products (e.g., travel health insurance for people suffering from epilepsy). 

Similar to the BoughtByMany business model are the P2P insurance startups, like Friendsurance, which reward those groups of customers with low amounts of claims, with higher cash-back.

All these startups can help us save money on the insurance premium, but what I find even more fascinating is that they incentivise positive behavior in their customers - for example customers are rewarded for driving responsibly and maintaining a healthy lifestyle.

The positive implications for our society, where 200,000 people are injured every year in car accidents in the UK and obesity is considered to be the cause of 50.000 deaths, could be massive.

What will happen to the old guard?

How are the traditional insurance companies reacting to this revolution? The pressure is speeding up their innovation journey and typically they are transforming the way they currently operate by:

  • Reimagining the interaction model with their customers, agents and brokers and making it much more fluid and collaborative (e.g. AIG advisor portal)
  • Investing heavily in mobility tools to increase the productivity of their agents (e.g. Axa in France)
  • Creating super personalised 1-1 customer journeys that take into account the specific needs and interests of their customers (e.g., AEGON has built the “Retiready” portal to help customers take an informed approach to retirement)
  • Leveraging the power of data to enhance the customer experience (e.g., Berkshire HathawayTravel Protection has created a mind blowing customer experience.)

The digital transformation journey is not easy for the incumbent insurance players. For decades those companies have been organised around policies and products, not customers, and the transformation requires them to step-up their technology platforms as well as their internal processes and capabilities. Historically, insurance companies don’t interact with their customers and engage them on a regular basis - according to a recent McKinsey article, insurers are among the industries that engage less with customers: 2-15 times a year depending on type of insurance vs. the 400 times a year for social media for example.

In order for insurers to build long-term, profitable relationships with their customers, which  are grounded in the knowledge and trust that they will be there when needed the most,  insurers must connect with their customers in these entirely new ways. 

As someone famously said: “Needing insurance is like needing a parachute. If it isn't there the first time, chances are you won't be needing it again”.

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