Root Insurance officially files for an IPO
that the company had filed with the US Securities and Exchange Commission (SEC) to raise US$100m, although this is anticipated to be a low-ball figure; the maximum amount could be as high as $800m in actuality.
Naturally, there have been comparisons between Root and , another prominent insurtech leader. With the latter company’s stock currently up 86% from its July IPO, it is, perhaps, this notable success that has spurred on Root’s own filing.
The key innovations that have led to Root’s success are its ability to ‘underwrite out’ the worst drivers from using its platform, therefore keeping overall prices low, and its recognition of mobile devices’ inherent value.
As CEO Alex Timm said in an with Carrier Management, “Nobody in insurance was treating mobile as a distribution channel. Everybody had an app. But those apps are primarily targeted around servicing and, ‘Once I get you as an insurance customer, can I then get you to download this app?'”
As competitors in the space, such as , begin exploring the potential of their technology instead of just their platform, Root could decide to pursue this course more vigorously. Timm has intimated that this could already been ongoing:
“Root doesn’t only have insurance company revenue. We also have software products. Some of the software products, we believe, could be a bigger portion of our revenue in the future depending on which way things evolve.”
Possessing the tech prowess and innovative mindset necessary for survival in the contemporary market, the result of its IPO will be indicative of insurance’s future direction.
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.