If you hang out with people in the financial sector, you may have heard the word ‘InsurTech’ being bandied about. You might have heard that $3 billion was invested in InsurTech in 2015 alone and be wondering what on Earth it is, let alone why everybody seems so excited about it.
So, what exactly is InsurTech?
According to Investopedia, “InsurTech” or “Insurtech” is a portmanteau of the words ‘insurance’ and ‘technology’. It refers to the sector of the financial industry that specialises in technological innovation in the insurance industry. The sector studies and implements technology-driven methods to better tailor coverage to clients, more accurately calculate coverage, or streamline or reduce the costs of the provision of such coverage. It uses technology like AIs, automated monitoring of customers and so forth to achieve its aims.
Examples of InsurTech innovations are things like Telematics or Black Box-based insurance, where the driving behaviour of the actual insurance client is monitored and the risk posed by that client accurately assessed. This is now standard at many major insurance companies.
Why is this important?
Well, in simple terms, investing in InsurTech stocks may be a way to make a great deal of money. According to The Business Insider, the insurance industry is ideally placed for innovation, with low levels of customer satisfaction and outdated methodologies. Where there is room for improvement, there is opportunity, and the insurance industry has a great deal of room for improvement.
Furthermore, according to Timo Dreger, MD of Berlin-based Apeiron Investment Group, InsurTech is in the same position now as fintech was a few years ago. You don’t need us to tell you about the revolution in financial technology that has happened in recent years. Investing now might be a chance to get in on the ground floor of what is sure to be a major shift.
Related to the financial aspect are the effects on the consumer. InsurTech promises lower premiums (at least for cautious customers) and a slew of gadgets and devices to keep you healthier and safer. The latter is apparent after a moment’s thought. Insurance companies lose money when bad things happen to their customers. It’s therefore in their interest to incentivise purchases and habits (such as gym memberships or Telematics units in their vehicles) which make them safer and healthier. It really is a win-win.
Or is it?
Standard and Poor has found some shortfalls in the business plans of several InsurTech platforms and cautions that investment in InsurTech start-ups with strong ties to existing insurance providers may be a safer investment bet. Particularly when one considers the existing relationships, expertise, experience and wealth of historical data these providers have access to.
How do I get in on this?
Apart from speaking to your broker or insurance provider, a good starting point would be consulting a list of international conferences on InsurTech, in a variety of locations around the world.
It’s a mercurial world out there, and barely a week goes by without some new innovation or technology that threatens to gut an industry, put millions of employees out of work, or solve some problem that we’ve had for centuries and make our lives a great deal better. There’s absolutely no doubt that the fast pace of technology will affect every industry, and there’s no reason the insurance sector should be any different. InsurTech is here to stay, and it’s only just getting started.