May 17, 2021 | By Matthias Weber.
Long-standing problems for insurance provide Insurtech entrepreneurs with attractive opportunities.
As the former Group Chief Underwriting Officer of Swiss Re, I believe insurance has always provided a great value proposition. However, the insurance industry still has formidable obstacles to address. These challenges create viable business opportunities.
Two major classes of difficulty immediately come to my mind: high costs and poor client experience. Once we explore the nature of these problems, the opportunities present themselves clearly.
Problem 1: Insurance premiums are too high
Frictional costs are generally quite high in the insurance industry. Sometimes good risk subsidizes bad risk—if there is not enough risk-appropriate price differentiation in place. This may lead to anti-selection (insurance more often bought for bad risks than for good risks) which means premiums climb for insurance buyers.
Some insurable risks could be cost-efficiently mitigated and don’t need to be insured. Also, some claims are fraudulent and should not be paid by insurance at all. According to the FBI, the total cost of insurance fraud (excluding health insurance) is estimated to be more than $40 billion per year.
Problem 2: Dealing with insurance is not always a great experience
Many insurance products are subject to a complex set of terms and conditions, and insurance policies are often hard to read and understand. Consumers struggle to find truly holistic and unbiased advice about insurance. How much do they need? What type of insurance should they avoid when budgets are tight? Plus, claims processing may be cumbersome or even hostile in some cases. Expectations and actual reimbursement may be out of sync leaving clients unhappy with the entire process.
Target a defined opportunity
The problems I described provide Insurtech entrepreneurs with excellent opportunities. Here are three strategies that I see startups successfully adopting today.
Beat traditional insurers at their own game
Some Insurtech brands seek to solve most/all of the above problems at once by leveraging technology. Well known examples of full-stack digital insurance carriers that have achieved unicorn status include Oscar Health, Bright Health, Root, Lemonade, Hippo, Doma, Next , and Metromile.
These brands have left a valuable trail of breadcrumbs for us to follow. These companies:
- Offer products that are intuitive, flexible, and tailored to specific customer needs. For instance, Lemonade makes insurance buying as painless as possible.
- Settle and pay legitimate claims efficiently, frequently measuring customer satisfaction (NPS).
- Focus on reducing price through (i) services or devices that mitigate risk and (ii) scalable technology (robotic process automation, conversational interfaces, or digitization of paper records via OCR and NLP).
- Target specific segments. Doma, for instance, focuses on writing title insurance.
- Scale quickly by building capabilities for organic growth, buying data, technology, or companies, and/or engaging in partnerships like Next and Amazon did.
This approach involves replacing traditional insurance brokers with a digitized experience. Examples include CoverHound who provides shoppers with instant quotes and curated comparisons of insurance products from the best property & casualty insurance companies.
Then there’s PolicyGenius whose direct-to-consumer platform allows consumers to shop for and buy Life, Disability, and some Property & Casualty insurance products.
Provide enabling services
Here, companies provide traditional insurers with solutions that address specific pain points. Some areas I see companies focusing on include:
- Underwriting - CyberCube is a leading provider of cyber-risk analytics built for insurance. Their risk assessment solutions are based on a terabyte-scale of curated data and built on state-of-the-art cloud technology.
- Product development - Some companies make it easy for insurers to price, underwrite, and service drivers based on driver behavior data. Cambridge Mobile Telematics offers a mobile platform that scores driving performance, incentivizes safe driving, and provides crash notification and claims automation for insurers.
- Claims - Shift Technology provides AI based software to identify claims and financial crime fraud in the areas of Health, Property & Casualty and Travel insurance. The company also provides claims process automation and identifies subrogation opportunities.
Insurtech is far from saturated
In 2020, approximately 14.5 billion U.S. dollars was invested in global Insurtech companies. Even though Insurtech has become a large and active sector within the FinTech space, many of the above-mentioned problems still have plenty of room for improvement. I feel this leaves attractive opportunities for entrepreneurs to enter the market.
Mighty Capital Partner, Matthias Weber is the former Group Chief Underwriting Officer of Swiss Re and current Board Member of Next Insurance US Company and CyberCube Analytics. With close to 30 years of activity in the insurance sector, his insight and guidance now help emerging brands and entrepreneurs to capitalize on new opportunities in Insurtech.