A Guide to Insurtech: How Startups are Changing the Game

Most of us are so familiar with the concept of insurance that it’s hard to imagine living without it. However, the industry has an interesting and sometimes colorful history.

England’s insurer Lloyd’s of London was established back in 1688. The origins of insurance in the U.S. date back to 1752, when Benjamin Franklin co-founded the Philadelphia Contributionship. The move was designed to protect homeowners concerned about the proliferation of residential fires (something not altogether surprising given that most houses at the time were made of wood and built close together.) 

A few years later, Franklin played a role in establishing the first life insurance company in the U.S. ― a move met with outrage by some religious authorities who questioned the ethics of putting a monetary value on human life.

While the industry and associated regulations have undergone significant shifts since those days, some of the established incumbents in the insurance industry have been in the market for around 100 years. 

However, given the rampant acceleration of digital innovation over the last decade, it’s no surprise that a tidal wave of disruption has hit this sector.

What is Insurtech, and How Does it Differ From Traditional Insurance?

Insurtech is not an exact replacement for traditional insurance; so, what is it, exactly? Insurtech refers to the application of technological innovations like artificial intelligence (AI), machine learning (ML), Big Data, data analytics, Internet of Things (IoT) devices, and others, within the existing insurance model. 

The result is improved efficiency for insurers and increased savings for policyholders. Many insurtech solutions are specifically developed to address common insurance inefficiencies like slow claims processing, tedious risk management practices, lack of policy and pricing personalization, and many others. 

The Rise of Insurtech Startups

Traditionally, the insurance industry has been slow to evolve and adopt new technology. However, with increased digitization in the general economy and changing consumer expectations, the insurance space has been left with no choice but to embrace technological advancement, leading to the rise in insurtech solutions.

Insurtech providers understand the industry’s inefficiencies and recognise the potential for improvement with modern technology. This has led to the birth of innovative insurance products that lessen insurers’ reliance on resource-intensive manual processes at every stage, including risk management, underwriting, claims processing, policy administration, and customer service. It can also enhance their ability to leverage consumer data for a better policyholder experience and improved policyholder loyalty. 

Many macroeconomic trends are behind the growth of insurtech, including the push for a more policyholder-centric insurance model. This is a fundamental shift occurring throughout the insurance space, as widespread access to consumer data is now making it easier for insurers to offer policy recommendations and pricing uniquely tailored to each customer’s needs and risk profile. 

Top Challenges Insurtech Startups Face in the Industry

Despite the impressive benefits that insurtech startups provide for both policyholders and insurers, there are some notable headwinds to the industry’s continued growth, which we’ll explore in more detail below. 

Regulatory compliance and legal hurdles

The insurance industry is notorious for being riddled with red tape, which is partly why it’s been so slow to embrace change and innovation compared to other industries. Insurtech providers face a complex regulatory landscape that varies across jurisdictions, creating compliance challenges that can stagnate growth. Otherwise, they risk facing legal penalties and fines that can further impede their progress. 

High customer acquisition costs

As well as incumbent insurers, insurtechs must compete with the numerous other insurtech startups hitting the market, often making it challenging and costly to acquire new customers. According to a report by Grand View Research, the global insurtech market size is expected to grow at an impressive CAGR of 52.7% from 2023 to 2030, meaning insurtech startups face steep competition and will need to invest significantly in customer acquisition to grow brand awareness and trust. 

Integrating technology with traditional insurance models

Compatibility of insurtech solutions with legacy insurance systems and outdated processes also poses a challenge for new startups. The industry itself is also somewhat resistant to change, which insurtechs will need to overcome to drive effective improvement. However, as traditional insurers face rising competition from digitally-native providers and rising demands from consumers, this will likely dissipate, reducing the challenges for insurtech startups over the coming decade. 

Data security and privacy concerns

One of the pillars of the insurtech model is its ability to analyze the large volume of available consumer data to provide policyholders with better pricing and personalized policy offerings. While this is welcomed by many, others have voiced security and privacy concerns that their sensitive information is being collected and stored by a growing number of service providers. 

With cybersecurity threats increasing, insurtechs need to implement robust security practices to keep policyholder data safe from data breaches and bad actors. 

How do Insurtech Startups Secure Funding and Grow?

Many insurtech startups are backed by venture capital (VC) funds. This is an attractive source of funding for startups because it gives them access to large sums of money to help them scale quickly. It also connects them with expert mentorship from experienced professionals and boosts their credibility in the marketplace with the backing of notable investors. 

For these reasons, the VC space is often competitive, so not every insurtech startup seeking funding through this route will be successful. Other funding options include collaborations with established insurers, accelerator programs, and crowdfunding, each of which offers its own unique set of advantages and drawbacks that insurtechs should consider before pursuing. 

How can Consumers Benefit From Insurtech Innovations?

Insurtech startups are revolutionizing insurance operations and improving insurers’ ability to deliver a quality policyholder experience. They’re helping insurers make better use of policyholder data to offer more relevant recommendations and pricing based on each customer’s needs and risk profile. This can improve policyholder satisfaction and loyalty when customers feel like they’re dealing with an insurer that is aware of their unique needs and pricing their policy appropriately. 

Insurtech solutions can also improve convenience for consumers, powering self-service portals where policyholders can access relevant documents, billing information, and claims status whenever and wherever they’d like, without having to visit the office or call their insurer on the phone. 

How to Keep up with Insurtech Trends

With the insurtech industry still in its earlier stages of development, there is much room for growth and new trends as the space evolves and integrates with established insurance practices. This makes it critical for incumbent insurers, insurance professionals, and policyholders to stay up-to-date on changes in the insurtech field. Here are some ways to stay informed on the latest insurtech trends: 

  • Follow insurtech industry news and blogs that cover emerging topics, trends, and startups.
  • Attend tradeshows, conventions, and seminars that showcase insurtech product demonstrations and the latest innovations in the field. 
  • Engage with key insurtech thought leaders online to discuss relevant topics in real-time.

The Bottom Line

With the help of innovative technologies like AI, automation, data analytics, and others, insurtech startups continue to disrupt the traditional insurance space. Companies like Insuresoft offer the key to better efficiency and policyholder-centricity that the industry currently lacks. 

Though there is a favorable growth outlook for the industry over the coming decade, critical roadblocks remain that startups must overcome to become competitive players in the modern marketplace. For more information on how a cloud-based insurance software solution can help streamline your operations, contact Insuresoft for a discussion today!