The insurance industry is a powerful kingpin, with a total of $1.22 trillion net premiums in 2018, per an Insurance Information Institute (III) post of S&P’s Global Market Intelligence report. The Insurtech business model is an initiative for using smart technology in the insurance industry to streamline sales and customer experience.
Insurance is one of the oldest industries and are not always adept to change. The dawn of Insurtech in 2010, a subset of Fintech which is the use of artificial intelligence (AI) in the financial sector. Insurtech technology is shaking up the traditional insurance industry with some millenial fervor and taking chances no large, established insurance firm would.
The Insurtech initiative is being tested in startups, which are smaller companies capable of changing and structuring new business models easier than larger companies which are vested in their sales structure.
The startups use AI and smart technology to gather information instantly from the client that is so adept it ultra-customizes policies per client. And with the overhead of manual work largely eliminated, the savings in overhead is passed on to the client in lower premiums.
The Milken Institute Insurtech Market Overview details out the startups’ business platforms that are being tested to streamline the sales process. The platforms are designated as Full-Stack Insurers, Agents and Brokers.
The Milken overview details three types of insurance avenues in which startups are forming:
- Full-Stack Insurtech
- Agents and
Full-stack startups handle the insurance application to policy process as a one-stop-shop. They are carrier who underwrite and deliver their own policies. Funneling the approval process does have its setbacks, however. This new business model can be seen as risky to investors, because of the uncertainty of the outcome in terms of reserve build-up for these policies.
Agents and Brokerages use Insurtech’s AI and digital data gathering to streamline sales and processing of open applications. The business model is mainly traditional in scope. However, the digital technology increases efficiency of the whole transaction.
The vast majority of the innovation and forward momentum of Insurtech has been in the US. The focus has highlighted underwriting as the major area to and on underwriting change. So far, the numbers reflect that AI and digital technology in underwriting an insurance policy is efficient, highly detailed and lucrative. And investors are pouring in money to propel the startups forward.
A statista.com report shows Insurtech market size is expected to rise to 175.44 billion in 2020 in underwriting improvements. The estimated available global market size for Insurtech presents enormous opportunity with their revenue generation.
“Artificial Intelligence (AI) and the Internet of Things (IoT) are growing in importance for the insurance industry,” stated the report. “Because they enable insurers to underwrite and process claims more efficiently.”