Venture capital funding for “insurtech” startups (sometimes written as “insuretech”) is experiencing a boom. Investors see insurance– one of the world’s largest industries–adapting slowly to technological change; entrepreneurs see a wealth of opportunities to improve operating efficiency and customer experience. As a result hundreds of new companies were founded in the last 24 months, and insurtech venture funding is expected to top $2B in 2017.
Broadly speaking, insurtech startups fall into two categories: those providing solutions for established insurance companies and those seeking to replace those same companies. For established insurance companies, there are lessons and opportunities in both categories, and it is well worth considering the current insurtech growth when looking at how to more effectively pursue innovation.
Startups focused on solutions for insurance carriers are not new, but advancements in underlying technology are yielding new approaches. For example, increased maturity in cloud computing has afforded One Inc., the ability to offer a cloud-based, modular insurance infrastructure with significant flexibility. Beyond the cloud, what was once Big Data has become data science: artificial intelligence, machine learning, and deep learning. As another example, advancements in machine learning on imagery have allowed Hover to create highly accurate 3-D models of homes using smart phone photos, paving the way to a future that includes more self-service for homeowners’ insurance claims.
In both these cases, as with the hundreds of other startup companies seeking traction with industry leaders, established companies would do well to consider two critical elements of partnership: contracting speed and data access. On the former, managing the insurance sales cycle–with its phased pilots and general lack of urgency–is a consistent source of frustration for insurtech startups seeking relationships with established carriers. In an environment where funding rounds provide 12-18 months of runway for a startup, any carrier partner that can streamline their own processes would be regarded by the startup community as a breath of fresh air. Regarding data, colloquially considered “the new oil”, investing in a secure means to expose historical information is a key element to successful partnership with next generation analytical partners.
The second category of insurtech startups, those taking a more competitive stance toward established companies, is just as important to understand. A common strategy for startups seeking to disrupt the current competitive environment is to focus first on user experience. Mobile-first brokerages, comparison-shopping sites, and even de novo carriers consistently deliver modern interfaces and streamlined process flows. Despite their promise, even a nimble, well-capitalized startup faces challenges such as creating awareness and acquiring customers when a top insurance carrier invests well over a billion dollars on marketing per year and multiple additional carriers invest hundreds of millions each. Beyond awareness, startups also must eventually find ways to develop pricing and underwriting rules based on limited claims history, or integrate with slow moving insurance carrier partners to gain access to their product sets.
As with the startups seeking partnerships, there are lessons in these more competitive startups and opportunities for established companies seeking to innovate. The obvious one is to improve user experience as the bar is rising. Less obviously, partnering with upstarts can be a productive way to access new markets or customer profiles while exploring new technologies more rapidly.
The depth of opportunity for innovation within the insurance industry suggests to me that this boom in insurtech startups is not likely to wane in the near future. The question for the established insurers in the market is how quickly and effectively can they react.