According to an Insurance Information Institute (III) post of S&P’s Global Market Intelligence report, the insurance industry is a powerful kingpin, with a total of $1.22 trillion net premiums in 2018. The Insurtech business model is a push to use smart technology in the insurance industry to improve sales and customer service.
Insurance is one of the oldest industries, and it is not always open to new ideas. Insurtech, a subset of Fintech that uses artificial intelligence (AI) in the financial sector, first appeared in 2010. With millennial zeal, Insurtech technology is shaking up the traditional insurance industry and taking risks that no large, established insurance firm would.
The Insurtech initiative is being tested in startups, which are smaller businesses that can change and structure new business models more easily than larger companies that are vested in their sales structure.
The startups use AI and smart technology to gather information from clients instantly, and the technology is so adept that it ultra-customizes policies per client. And, because the overhead of manual labor has been largely eliminated, the savings in overhead are passed on to the client in the form of lower premiums.
The Milken Institute Insurtech Market Overview describes the startups’ business platforms that are being tested in order to streamline the sales process. Full-Stack Insurers, Agents, and Brokers are the platforms.
The Milken report describes three types of insurance avenues where startups are forming:
- Full-Service Insurtech
As a one-stop shop, full-stack startups handle the entire insurance application to the policy process. They are a carrier that writes and distributes their own policies. However, there are some drawbacks to expediting the approval process. Because of the uncertainty of the outcome in terms of reserve build-up for these policies, investors may view this new business model as risky.
Insurtech’s AI and digital data collection are used by agents and brokers to streamline sales and the processing of open applications. The scope of the business model is primarily traditional. However, digital technology improves the overall efficiency of the transaction.
The vast majority of Insurtech innovation and forward momentum has occurred in the United States. The emphasis has been on underwriting as the major area to and on underwriting change. So far, the numbers show that using AI and digital technology to underwrite an insurance policy is efficient, detailed, and profitable. And investors are pouring money into the startups to help them grow.
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 an enormous opportunity for 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.”