Insuretech is the use of technology in the insurance industry to improve the costs and efficiencies of traditional insurance models.
Any innovative tech-based product is usually driven by the desire to disrupt an industry with what is referred to as a ‘blue-ocean’ strategy (think Uber or Netflix). Insuretech businesses are no different and use this strategy to pursue low cost and differentiation in the insurance products they offer.
Insuretech businesses aim to offer customised policies by using data from devices connected to the internet to develop price premiums based on observed consumer behaviour.
Custom made insurance products
With traditional insurance practices, broad actuarial tables assign customers looking for insurance products to a risk category. Customers are then grouped based on similar risk profiles.
Next, adjustments are made to the data to ensure the group is a large enough pool of customers. Finally, the group is adjusted to spread the risk for the insurance company to make sure they are profitable.
Because the risk is spread evenly across a group, some customers have lower risk profiles than others and might be paying too much for the insurance they need.
Disrupting the market with Blue Ocean
Disruption as a result
Insuretech companies use the data to group customers more accurately to offer more competitively priced products. This approach carves out a competitive advantage and allows Insuretech to disrupt the market.
Also, insuretech companies are wanting to take the innovation in insurance products and delivery thereof one step further by introducing AI (artificial intelligence). The vision is that AI will begin to handle activities generally handled by insurance brokers and will determine the right mix of policies to complete a customer’s insurance coverage.
Is Insuretech the future?
Is it the future?
Many Insuretech businesses still require help from traditional insurers to handle the underwriting of the insurance policies and manage catastrophic risk. The insurance industry is as ‘old as time’ and is underpinned by government and complicated legal regulation.
According to Investopedia, the global Insuretech sector will grow by a massive 41% between 2019 and 2023. Still, it certainly won’t be taking over in the short term. So partnerships with more prominent, well-established insurance players are paramount to success, like our partnership with Fedgroup.
This partnership marries the Insuretech and fidtech industries in a new and dynamic way that offers customers the absolute best of both service offerings.