Currently, insurtech occupies just 2% of the global insurance industry. But that is changing fast as companies scale at pace and investors throw their weight behind the new digital insurance providers emerging in the space. According to the latest studies by Research and Markets, the insurtech market is poised to grow by US$33.73bn between now and 2025, progressing at a CAGR of 45.28%.
The industry is maturing in a multi-dimensional, omnichannel environment, where strategic collaborations with other providers and new technologies are racing to produce new and increasingly innovative products and services. In fact, the environment is so ripe for creativity, that one of the defining success factors in a company, is how they decide which element to concentrate on in this swiftly expanding environment.
Leveraging Big Data and KYC opportunities in insurtech
One of the biggest disruptive elements in insurtech is the increased access to Big Data. Times have changed, and with it, the way data is used to define and determine market trends. Just a decade ago, insurance companies relied on information being provided over a long period of time, and just from a few data point sources.
Today, the amounts of data being produced, collected and aggregated, come from a wealth of data points, and provide much richer insights into the marketplace, customer preferences, and risks. Indeed, data collected over a long time frame, may not even be as relevant as data collected over a shorter period, but from many more sources.
Tim McKenzie, director – cloud computing and location solutions at data integrity specialist, Precisely, explains, “We are seeing companies looking for ways to leverage cloud/big data computing to begin to organise and enrich data at scale to take advantage of the opportunities presented by the increased availability of data.
“In the property and casualty industry, location is a vital component of the business from underwriting, to predicting risk, to responding to catastrophic events and more. The ability to create efficient methods of organising location-based data into a format that can be consumed by modern technologies like artificial intelligence and machine learning has become a very important strategy for capitalising on this influx of data.”
He adds, “Precisely’s methodology of organising data to a unique and persistent location key, along with providing thousands of location-based attributes already pre-processed for every location, has made us a natural fit in this new era of analytics.”
Insurance industry transitions to new technologies and automation
Managing Big Data is the second half of the equation. By 2024, reports suggest that 70% of the global insurance industry will have adopted automation technologies. The transition requires a lot of investment but results in insurance companies becoming more profitable in the long term.
Steven Darrah, founder, and CEO of Fuelled, explains, “Disintermediation of insurance is a trend that has slowly been building momentum for a while. Most associate disintermediation with the removal of brokers from the value chain, but even trimming underwriting departments can be seen removing the middle-person nowadays.
“With the rise of new technologies, it’s easier than ever to increase profitability – it’s just taken the insurance industry a little longer than most to come around to the idea.”
He continues, “Simple and cheap automation can replace processes that used to be completed by humans. Often this can release human hands to complete more effective tasks that would be harder to give to a computer. In some organisations, however, the desire for automation will be to reduce overheads. Keeping overheads down and profitability up is a larger factor for businesses than ever before.”
Insurtech strategy and embedded offerings in 2022
Embedded insurance offerings have slowly emerged throughout the past two years to become one of the most talked-about new trends in insurtech. Embedded services enables insurtechs to form numerous partnerships with a massive spectrum of business customers who wish to offer cover products at the point of sale.
Automated and digitised offerings have been turned into a fully automated workflow, thus lowering unit costs and enabling insurtechs to scale at pace. The cover is flexible too and can be switched with a swipe or even automatically. Embedding insurance resolves the traditional drawbacks of insurance because its fast, easy and personalised. These products are also becoming an additional revenue stream for companies across many industries.
Embedded technology exists mainly in the form of APIs that can be integrated into existing platforms, with very little set-up and a fast market delivery speed. Like open banking services and the BNPL surge, embedded insurance will become a massive discussion point over the next few months.
How to manage partnerships in the insurtech ecosystem
Perhaps one of the most defining strategies an insurtech can make regards the partnerships it forms across the ecosystem. Forming a long-term, reciprocal relationship with another service provider can bring plentiful benefits and help that insurtech to scale at speed. However, like all relationships, a number of legal and workable strategies must be put into place to ensure the continuation of healthy and productive collaboration.
Rachel Hillier of Capital Law is an experienced regulatory lawyer and leads the Financial Services team explains, “Honest and frank conversations about these matters at an early stage are vital. When it comes to recording each partnership in writing, the devil really is in the details. Will an investor be entitled to have a director on the board? How often does that director expect to attend meetings? What decisions of the company will require investor consent? For delegated authority, there will be similar details in the delegated authority agreement (DA).”
She adds, “The parameters of that authority must be carefully negotiated and drafted into the agreement. Whilst the extent of that authority is important, exit and reporting provisions must be considered. Intellectual property and confidentiality clauses could all also be points of friction if not discussed and written into the DA at the beginning of the partnership.”