By Ken Gregg, CEO of Orion180
The digital age offers a modernization guide for insurance professionals who recognize the value of applying the power of technology to improve industry inefficiencies, customer experience and ultimately bottom lines. Insurers embracing these new technologies find high-tech solutions that better serve customers, especially digitally immersed ones.
The result is Insurtech, a portmanteau of insurance technology. Insurtech is a subcategory of the FinTech field. These tech-heavy subsets have begun creating unexpected opportunities by disrupting well-established processes that have previously defined the financial and insurance industries.
Insurtech is an applied innovation, and it is one of the economic sectors leading the charge. Insurtech is purpose-led, data-driven technology that simplifies policy management for insurers, agents & customers, enhances the customer’s experience, and ultimately looking to reduce the cost of doing business for agents and insurance companies.
This high-tech approach offers the insurance industry the opportunity to transcend the traditional norm of doing business and utilize technology to meet the demands of digitally savvy customers. Insurtech harnesses its power from several critical factors:
- In the 21st century landscape, insurers have an ongoing digital connection to each client and customer. These digital footprints result in remarkable amounts of data that can provide great insight into consumer behaviors and choices. Artificial Intelligence (AI) and machine learning are the mathematical tools that can break down data sets by integrating tremendous amounts of policy, product, customer, and claims management information.
- These large data sets require advanced analytics and powerful algorithms to identify emerging patterns that can improve an insurer’s ability to evaluate risk. Advanced analytic tools can be successfully applied to sales & marketing, underwriting & pricing, as well as the claims management process.
- The high-tech nature offers insurers an effective and efficient way to reduce fraud by eliminating security risks and regularly assessing operational risks.
- Improved claims experience for customers, which creates a competitive edge.
For the most part, Insurtech players have primarily focused their business efforts on acquiring the consumer through the Direct to Consumer (D2C or e-Commerce) digital marketing distribution. The recent surge of the ‘Direct to Consumer’ business model is quite evident as consumers have become more comfortable in purchasing items through the internet.
- Direct to Consumer sales in the United States topped $76 billion in 2019.
- Direct to Consumer sales are expected to double to $151 billion in 2022.
- The global funding for Insurtech companies in 2021-Q3 was nearly 50% greater than the previous year – 2020.
Insurers that have already begun using more technology have found ways to modify the more traditional insurance models to meet the fast-evolving customer demands. Many innovative insurance companies have begun to apply the Insurtech model in the more traditionally overlooked and underinsured areas, like offering insurance for delivery drivers or even pay-as-you-go insurance for bicycles.
While focusing on D2C insurance model has been the trend over the last few years, investors should be aware that for many of these companies, the trend has not proven to be a very profitable one. Many of these DTC Insurtech companies do not have deep roots nor expertise in the insurance industry, and as result do not understand the nuances necessary to build cost efficient processes that are needed to support the technology. In addition, most require a continuous influx of new leads and the conversion of those new leads; on the DTC digital space, which can create a very high cost of acquisition which keeps profit lean, if existent at all.
While there is room in the Insurtech space for the direct-to-consumer model, the B2B space continues to operate on more solid ground. Insurtechs that continue to depend on the agency distribution model will proceed to thrive. The mix of ease-of-use on the technology side, plus the experience and knowledge brought on by retail brokers is a healthy model that may lead to more profitable results.
Although the Insurtech sector is still in its early stages, investment opportunities are available for those with an investment objective that includes a cutting-edge insurance industry sector. Investors can purchase stock in the public companies, focusing on technology as the way of differentiation. In addition, some ETFs offer niche funding for the FinTech sector, of which Insurtech belongs.
The Takeaway
As the Insurtech industry finds its footing, cutting-edge technology is helping insurers in many ways extract valuable insights into their customers’ needs and behavior to provide a better customer experience, while at the same time improving the inefficiencies of their business. With this innovative approach and modified DTC and B2B business models, insurers like Orion180 are ready to seize the opportunities created by these digital applications.
Insurers and investors will find that the valuable insight provided by this innovative and fresh approach to insurance will offer improved customer service and the option to enter niche or microinsurance markets that offer supplemental business.