Fintech is a technology used in the financial services industry, insurtech is a technology used in a subset of that industry, insurance. And yet while one is typically considered fascinating, worthy of pages of mainstream media coverage, mention of the other is often greeted with an eye-rolling outside of specialist circles.
Partly this is an issue of semantics — one of the appeals of fintech is how much the term covers. As a subject it will provide something of interest to everyone, from retail customers looking for a better bank account or loan, to small businesses, large corporates and incumbents trying to drive their own innovation projects forward. If you use the descriptor fintech, you can be sure a broad audience will dip into articles, watch videos, listen to podcasts etc.
Insurtech on the other hand generally inspires not interest, but boredom, and in some cases a more negative reaction. As a subset of fintech you would expect a narrower audience but the fact the reaction to the term goes beyond disinterest needs exploring.
The insurance industry has a bad rep
Trust in financial services firms plummeted after 2008 but the insurance industry had image problems long before that. Perceptions that insurers will do anything to avoid paying out on a claim, that they charge too much, and resentment about paying for a product that might never be needed — especially if it’s a legal requirement — have persisted for decades.
In some cases, these perceptions stem from individuals’ bad experiences and one or two bad actors in the industry, but a large part of insurers’ problem is that people don’t understand what they actually do. The insurance industry’s inner workings remain even murkier than those of the banking world, so when the term “insurtech” comes up consumers, businesses and even insurers, don’t often get what that means for them.
This problem is especially acute in markets where price comparison websites dominate. In such environments, consumers almost exclusively choose a policy based on price, rather than whether it’s right for them as an individual. They understand even less what “good” looks like because they are engineered to focus on “cheap”.
Insurance is evolving
Insurance companies are not unaware of this problem and as they increasingly use technology to offer a broader range of products and services one of their main motivations is to change how they are perceived. They’re focusing more on prevention rather than cure with the use of connected devices (e.g. Aviva’s investment in Cocoon), launching new brands with different messaging and target demographics (e.g. Admiral’s Veygo), and offering a range of services complementary to insurance.
At the same time startups are entering the market, either helping those insurers find new distribution channels and modernize technology stacks, or competing with them head-on. Lemonade is arguably the most well known of the latter group and has a Net Promoter Score (NPS), which measures how likely customers are to recommend a business to a friend, of age 70. That compares to an industry average of under 20.
Lemonade’s an interesting case. Many customers choose it because of how much cheaper its home and renters’ insurance products are than its incumbent competitors’. It claims it can offer “killer” prices because it uses high levels of automation in underwriting and other back-end processes. But those customers are not giving it such a high NPS on price alone, so it must also be doing other things well. If you look at its always-available chatbot agents, the speed and ease with which you can make a claim or update a policy and its frequent blog posts giving in-depth insight into how its business works, you can begin to see its appeal.
Why should you care about Insurtech?
Sure technology can make insurance cheaper. But it can also make it easier to understand, buy and manage. In turn, that makes people more likely to recommend it to their friends which is good for the insurer, and good for consumers who are by and large, woefully underinsured across Europe and the US. The more accurately informed, and insured, consumers are, the better protected they will be, and the more they will come to understand why it’s worth exploring companies doing insurance differently.
Away from the general public, technology is also helping insurers serve more niche demographics — gig economy participants, small businesses, those with long-term health conditions who want to travel or have pets with special requirements, and those who want to drive a car but not every day. These groups historically struggled to get adequate insurance because products from incumbents either didn’t exist or were prohibitively expensive, but now there are alternatives and these demographics are starting to realize. That said, raising awareness of products remains providers’ biggest hurdle — but it is also their priority.
Aside from personal and commercial lines, technology is changing the industry on a larger scale. Catastrophe insurance, or “cat insurance” as it’s known, is an area where technology is making a huge impact.
Data mapping and analytics are getting better at predicting the impact of natural disasters even as the events themselves become less predictable. That’s helping insurers better prepare for such occurrences, which can reduce the impact on thousands of homes and livelihoods. Drones and parametric insurance are helping insurers better serve harder to reach communities, enabling faster impact assessment and faster payouts respectively.
These examples go to show just how many different types of exciting new technology are being used by insurers, often many more than by banks.