The next frontier for insurtech is reinventing insurance itself

Toby Coppel
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Companies that dress up old solutions with a new app and charming user-interface will not fare well (Source: Getty)

In 2015, when I first invested in an insurance technology startup, the term “insurtech” hadn’t been coined, and the explosion of investment in insurance was yet to begin.

Fast-forward three years, and the landscape has changed immeasurably. Over $230m was invested in insurtech globally in 2015, growing to over $500m in 2016.

Despite the fanfare, the insurtech era will only begin in earnest when entrepreneurs fundamentally reshape “insurance” itself. These companies will win big, while those that dress up old solutions with a new app and charming user-interface will not fare so well.

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Over the last three years, many supposedly new insurtech solutions have been similar to old insurance products that have long been available – albeit repackaged and segmented for the right audiences, with better customer experience.

I am not totally negative about these – in fact, many will become solid companies. However, the businesses that tackle insurance itself can win big.

A number of startups are already rethinking the core proposition of insurance. Some, such as Slice and Trov, are unbundling whole policies and slicing them up into single item property and casualty (P&C) policies, or into on-demand policies for gig economy workers.

Companies creating products for underserved communities could also win big. SMB cyber insurance is a good example, where new entrants such as Coalition and at-bay are writing a new rulebook.

Startups are also introducing new data into the pricing/risk equation. This data could be part of a security audit for a cyber insurance policy, or the introduction of environmental sensor information, such as relating to moisture or temperature.

I’m also interested in insurance startups that take the “full stack” approach – those with their own balance sheet and regulatory capital. This more capital-intensive approach is not for everyone, but it gives a startup the greatest flexibility to innovate.

In Europe, several full-stack companies have raised substantial capital – including Coya, Alan, and Ottonova; as have Oscar, Collective Health, Bright Health, and Lemonade in the US.

In addition to activity in P&C, there have been important entrants in the life sector in the US, including Ladder and Haven Life. Ladder has cleverly re-engineered the core life product to automatically adapt levels of coverage based on a customer’s finances.

Insurance for life, sickness, and disability are each difficult to crack, as most don’t believe they need protection. HealthIQ has taken a different approach to customer acquisition here, by creating content that engages customers attuned to wellness and health.

It goes without saying that reinventing insurance is not easy, and is all the more challenging if a founder wants to work with mainstream carriers. I’d like to see more insurtech startups building robust partnerships with reinsurers that are willing to let the younger company learn on their dime.

The degree of overall difficulty decreases when this relationship is in place. The quid pro quo for the reinsurer is that they can scale up their capital deployment once the startup gains traction. Munich Re is leading the way here, but there is room for more innovation.

It would be interesting to see more entrants in underinsured areas, especially those that acquire customers differently. Mainstream customers are used to being sold to by insurers via expensive television ad campaigns, or via Facebook and search ads. Startups need to be innovative to circumnavigate the big beasts.

In both cases, addressing the core underlying insurance product is the key to building a valuable business, and re-skinning yesterday’s services is not.

I believe that 2018 will be the year that insurtech comes of age, and that this will pave the way for a total reconsideration of how consumers interact with their insurance, and their insurers.

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City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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