Why isn’t Insurance Tech as Developed as Other Parts of the Fintech Market?
Insurance tech isn’t as developed as other parts of the fintech market. Bernard Lunn looks at the reasons for so few insurance tech startups.
Insurance tech isn’t as developed as other parts of the fintech market. It feels more like fintech around 2011, when a lot was happening but few people were observing what was happening.
Insurance tech could develop at a faster pace because a lot of people who missed the rise of fintech want to make sure they don’t miss the next big market opportunity. The explosion of social, mobile, analytics and cloud (SMAC) technologies means that startups operating at the top of the stack – at the application layer – can often get tremendously rapid traction.
The other reason that insurance tech could happen fast is consumer demand. The three types of companies that often get consumers angry (what I call the ‘three horsemen of the consumerclypse’) are phone companies, banks and insurance. Banks got a lot of the bad press after the subprime mortgage blow-up, but if you ask a lot of consumers what really causes them stress on a day-to-day basis, you will often hear ‘insurance companies’. Buying insurance is supposed to reduce stress, but dealing with a bureaucracy that often seems to hold all the cards and to be fundamentally motivated to reduce or disallow payouts at a time when you’re dealing with the stress of sickness or a car crash, or a disaster that struck your home, dramatically increases stress levels.
Insurance is complex, with many segments. Some segments, such as health insurance, are country specific. Others such as home and auto insurance tend to work the same globally. Reinsurance is a totally global market but one that consumers tend not to see (it’s a B2B market). To navigate this complexity, I sought an expert and found Rick Huckstep. I asked Rick what trends he sees impacting the insurance market and which startups look interesting. His fundamental point is surprise that we’re not seeing more:
“Insurance is conspicuous by its absence from the fintech scene in London,” he said, “and it’s a mystery to me why it has such a low profile given the massive opportunity in this sector.
“Insurance spend on IT represents about 25% of the global financial services marketplace. Therefore, it would be reasonable to expect one in four of all new fintech startups to hit the street as being insurance tech, but that’s not what I’m seeing when I look around the incubators, accelerators and angel investing clubs in London.”
Insurance tech startup wins fintech award
Rick continues: “Of course, some of the major insurers, like the banks, are getting behind the incubators, or setting up their own creative spaces, such as Aviva’s Digital Garage. But there’s a massive difference between encouraging your staff to wear jeans and thinking of new ways to make insurance cheaper, and the truly disruptive, no-holds-barred approach of an entrepreneur who wants to change the game forever.
“To illustrate my point (in a completely unscientific way), last week I went to the Bobsguide Fintech Innovation Awards dinner in London. It was a fine event with big-name keynote speakers and 400 of fintech’s finest in the room. I counted 75 businesses as the nominees against 18 award categories, none of which were categories specifically for insurance.
“Of the 75 businesses, only one would be labeled as ‘insurance’, and that was Bought By Many, which acts as an insurance intermediary to provide group discounts and better terms for communities of interest, such as travel insurance for specific health conditions – diabetes or a heart condition – or pet insurance for specific breeds of dog, such as a Labrador, Bearded Collie or Bloodhound. Ironically, given the point I’m making, Bought By Many went on to be named winner in the category for ‘Fintech Innovation of the Year’!
“The reason there aren’t more insurance tech startups is simple: the technology and the condition for change haven’t been here until now! Insurance has largely operated the same way for the past 300 years, but now technology really can enable all lines of insurance business to be radically changed.
“Let’s look at the fundamental issue of pricing. Back in the 17th century, in Edward Lloyd’s coffee house on Tower Street, insurance risk was priced individually. How much to insure my cargo ship from crashing on the rocks or being raided by pirates? As insurance expanded beyond Lloyd’s and into providing protection for the masses, the fundamental principle of the pooling of shared risk was established and the whole business model for an insurer was built upon it. Today, however, technology enables the 17th century approach of individual risk to be applied to those same masses. No longer should my car insurance be priced according to a category determined by my age, gender and location when it can be priced specifically to how well and how often I drive my car (thanks to the telematics data from my car).
“Technology now provides the means for disruption in insurance through the wholesale adoption of new tech such as wearables, the proliferation of the ‘Internet of Things’, the EU directive to ensure telematics in every car from next year and, of course, the massive capability of big data.
“And so, given that we have all this technology at our fingertips, more funding available to fintech and London than ever before, a UK government that has created a fertile environment for entrepreneurs and investors alike, and a 300-year-old industry ripe for change, why are we not seeing more insurance tech?”
Here are the names of insurance tech startups from Fintech 1000:
· Analyze Re
· Bought By Many