Over 1,000 InsurTech startups are leading the overdue change in the insurance industry. Insurance innovators within the established risk carriers are actively working to continue what entrepreneurs and their investors have begun. But to have an even greater impact on the insurance industry, we need more decision makers and people who understand what InsurTech startups are about. So what exactly are InsurTech startups?

Insurtech Startups Are the Result When Three Business Areas Converge

InsurTech startups are in the intersection of three domains of business practice. The first domain is the traditional insurance business. The second domain is innovation & technology, and the third domain is startups. The special thing about InsurTech startups is that they have characteristics from all three business domains. That's what InsurTech Startups are all about and what makes it so difficult to understand.

Domain No. 1: Traditional Insurance Business

Traditional Insurance Business

Insurance is a simple payment promise as a means of protection from uncertain financial loss. To be insurable, the risk insured against must meet specific characteristics. Actuaries assess the financial risk of a particular situation based on historical data and applying statistical models.

The insurance industry has not changed its business principles for at least a century. It’s time to wake up the sleeping giant.

If it makes economic sense for the insurer to cover the risk, it offers the insurance product to prospects. When a prospect wants to be insured, an insurance policy gets issued. The insurance policy determines the claims which the insurer has to pay for damages caused by the risks covered in the contract. This business principle of the insurance industry has not changed for a very long time.

Not All That Glitters Is Gold

Traditionally insurance was a highly people-intensive business. Distribution, administration, and claim adjustment required a lot of staff. With the introduction of electronic data processing (the Tech of the ’80s) software applications automated parts along the entire policy administration process, from issuing a policy, keeping records up to date, to the settlement of claims.

Established insurers have two main economic challenges: changed customer behavior and lack of interest income.

Today traditional insurers face two fundamental challenges. The persistently low level of interest rates calls the current business model into question. Due to the lack of interest income, many insurers have to discontinue, sell or massively reduce former profitable business lines. The second challenge is the massive change in customer behavior. The Internet drives consumer expectations and creates enormous problems for incumbent risk carriers and their sales force — more on this in the next paragraph.

Domain No. 2: Innovation & Technology

New Technologies Change Our Lives

One of the main drivers of change is the internet. The net has become embedded in every aspect of our day-to-day lives. It changed the way of almost everything we do. Ordering meals, buying apparel, watching movies, sharing moments in life, and messaging our friends. The Internet has changed how we behave.

The Internet changed how we socialize with our friends, how we purchase goods, and how we do business.

Also, the internet has removed all information and communication barriers. It changed the way we search for information, consume customer reviews, compare prices, and finally make purchases. This new customer behavior increasingly changes established industries, and in particular increases pressure to change for the insurance business.

Further new technologies that have not yet existed are already in the starting blocks. Inventions like precision medicine (genetics), Artificial Intelligence (AI), Internet of Things (IoT), Data Analytics, BlockChain, and many more will have a significant impact on our daily lives.

Business Innovations Transform Industries

Incumbent industries enabled and ensured our prosperity for over a century. It is all based on technical innovations. However, the main focus so far has been on improvements in products and processes. These traditional ways of thinking and managing corporations are no longer sufficient, to survive in this new economic environment.

Economic winners of the future do not compete with products and processes but on the basis of business models.

New companies with innovative offerings and business models have taken the world by storm. These new entrants make it increasingly difficult for established companies to maintain their current business operations and profits. Prominent examples are AirBnB, Uber, Linkedin, Amazon, Netflix, and Wikipedia.

Furthermore, companies with new business models use the potential of new technologies (e.g., Internet) and thus achieve an economic performance that cannot be accomplished with the traditional product and process innovations. Industries like insurance have already started to change dramatically.

Domain No. 3: Scalable Startups

Startups Are Most Likely to Fail

Let us add the third domain. The term "startup" has been widely used in recent years and is popularly referred to as young people in new funded companies in the area of San Francisco. But what are startups about?

“A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.“

This definition (by Eric Ries; Lessons Learned: What is a startup?) brings it to the point. A startup is a new venture with the goal to successfully satisfy a market need with a new kind of offering. Because the risks of the new endeavour are unknown 75% of all startups fail, according to new research by Harvard Business School’s Shikhar Ghosh.

Startups Turn Fate in Their Favor

Because launching a new company is a hit-or-miss venture a countervailing force has emerged, one that can make the process of starting-up less risky. The methodology is called the “lean start-up“ and has quickly taken serious application in the startup ecosystems around the world.

To improve their chances of success up-starts are following this lean startup principles to fail fast, learn quickly and thereby minimising waste of time and money. This procedure shortens product and business development cycles and rapidly reveals if a proposed business is economically sustainable.

Scalable Startups Are Waking up Sleeping Industries

To have an impact on incumbent industries startups have to be scalable. Scalable startups can grow their customer base, operations, and profits as the size of the company increases. This is the fuel for transforming traditional industries, in some cases disrupting them.

Scalable Startups are the key to transform traditional multi-billion dollar industries.

For investors, increasing profits with increasing company size is a decisive prerequisite for financing the expansion of a new company. If these conditions are met, investors can be brought on board and economic magic can happen. See for example AirBnB, Uber, and facebook.

Combination of the Three Business Domains

InsurTech startups are the outcome when you intersect (1) traditional insurance practice, (2) business innovation & new technologies, and (3) scalable startups. This new overlap of the three domains creates novel opportunities inside the insurance industry that have not yet existed.

Insurance transformation is inevitable, the question is whether there will be a disruption in some areas. This is what makes InsurTech Startups so dangerous for incumbent insurance providers, valuable for their investors and important for customers.

Examples of InsurTech Startups

Here are very few examples of InsurTech startups in action, I had a chance to interact and have the potential to transform how incumbent insurers are operating:

  1. PICSURE provides a service to insure anything with a snapshot from your smartphone. Take a snap from a residential building and get a proposal, in an instant.

  2. KASKO allows insurance providers to quickly and easily integrate insurance products into a site, service, or app in a few days. What took carriers month is done in a few days.

  3. SIMPLESURANCE offers a platform to insurers for simply connecting insurance products with digital businesses like online-shops.

  4. RIGHTINDEM enables incumbent insurance providers with their white-label claims platform to enhance claimant’s customer experiences.

  5. SPIXII offers an automated insurance agent (chatbot) dedicated to making insurance quicker, easier and more personal than ever before.

  6. And of course there are the innovative digital full-stack insurers like FRIDAY, ELEMENT, NEODIGITAL which apply newest AI, ML and Data Analytics.

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