Insurance, Insurtech, Startup


Karl Heinz Passler


Compared to other industries, the pace of innovation in the insurance industry has always been low. The high profitability of the past decades and the belief of being safe from outside competitors led insurance agents, brokers, and risk carriers to the conclusion that there was no urgency for change.

The tendency was not to keep up with the latest technological „gimmick“. So the core business of insurers, their business model, and their technical infrastructure remained still. Almost all initiatives to keep their information systems up-to-date got buried.

Underserved Customer Demand Provides Opportunities

In recent years, information technology has evolved so dramatically that traditional risk carriers and their offline agents/brokers have lost track. What’s worse, their policy holders have become accustomed to the attentive services of other industries (for example Amazon instant delivery, realtime brokerage, mobile banking and electronic payments) that they expect the same service from their insurers.

The majority of insurance corporations are just starting to discover the benefits of social media and online generated leads for their customer service and sales functions. The unanswered customer demand provides business opportunities for new players from outside the insurance industry.

The Inevitable Gold Rush in the Insurance Industry

The core of the insurance industry consists of two things startups are really good at – data and money.

  • Risk carriers collect data on the probability of occurrence and the resulting damage costs. With this data they develop insurance products.
  • Insurance companies are investing heavily in the market through the acquisition of new insurance customers.

With this in mind, InsurTech startups believe they can achieve lower costs and better service through the application of modern technologies.

’’The core of the insurance industry consists of two things startups are really good at: Data & Money’’.

The opportunities are so big, the level of venture capital investment (VC funding) in the insurance sector has skyrocketed over the last few months. We will experience a Gold Rush, once it is publicly known how much money InsurTech pioneers earn.

The Forces Driving Change and to Benefit from

Force 1: The application of the latest existing internet technology creates new ways to interact with insurance policyholders

Policy holders adapted new Internet technology (web, smartphones, apps) faster than traditional insurers could respond. InsurTech startups fill in the gap, thereby capturing value for their customers and investors. Brokers, on the other hand, lose market share, and insurers themselves are limited to the function of risk-carriers.

The two following examples demonstrate lucrative applications of currentInternet technology from new players mainly active in the distribution function.

Business Model of Insurance Aggregators using Web 2.0 Comparison Engines Technology

Business Model of Insurance Aggregators using Web 2.0 Comparison Engines Technology -
Business Model of insurance aggregators using Web 2.0 comparison engines technology

Insurance aggregators and comparison sites like Check24, CompareTheMarket, MoneySuperMarket, BizCover, or GoCompare are extending the insurance brokerage process through the Internet. They show customers on their website what they get for their money with a transparent selection of the lowest quotes.

The broker develop the site and the comparison and quotation engine, markets his service through the Internet, and agrees with the participating insurers to be paid an acquisition commission for policy contacts concluded. For customers, the service is free of charge.

The aggregator will transmit the details of the applicant to the insurer and he then mostly concludes the policy of insurance.

Business Model of Insurtech Brokers applying mobile Apps Technology

Business Model of Insurtech Brokers applying mobile Apps Technology
Business Model of InsurTech brokers applying mobile apps technology

InsurTech brokers like Knip, CLARK, Friendsurance, FinanceFox or GetSafe are moving the insurance brokerage process online through a simple mobile app on customer’s smartphones.

The brokers develop the mobile app with a corresponding website, a customer and policy database and – in most cases – a full service consultancy back-office to select and advise on the best offers from partnering insurers.

The broker gets paid with regular portfolio commissions by insurance companies in return for handling administrative work and managing insurance contracts on their behalf. For their customers the service is free of charge.

Force 2: Development of novel internet technology creates potential for new products and business models

Based on the upcoming Internet technology, novel insurance products and business models will create better (and until today, unseen) solutions. InsurTech startups will fill in the void and capture most of the created value for their customers and investors. The following examples are already reality.

“The application of the latest internet technology creates new ways to interact with insurance policyholders.”

Insurance Products adapted to connected devices

The Internet of Things (IoT) has just emerged on the Radar of Insurers. Networked vehicles, homes, and devices in health will soon be ubiquitous. Several insurance companies start incentivizing policy holders to install connected devices that warn of potential danger.

  • American Family Insurance provides its customers a discount and deduction from home insurance premiums, if they use  internet connected doorbells which prevent burglaries.
  • Overwatch makes adjusters jobs easier by using drones to assess property damage from above, instead of sending an adjuster.
  • Progressive Auto Insurance quotes mileage based car insurance based on usage.
  • Oscar subscribers are given a gift card if they hit a fitness goal using fitness trackers.

First alternative Insurance Business appearing

We already see the emergence of new brokers and carriers. They attack with a new business model that is clear about how it creates value for its customers. Some examples:

  • InsPeer and friendsurance allow their policy holders to share insurance deductibles with their friends and family members.
  • Bought By Many finds insurance for the things in life that are out of the ordinary, by aggregating demand and negotiating discounts.
  • Trov creates customized home insurance by allowing coverage of individual key items, rather than a coverage set with average amounts.
  • Insuremyrentalcar provides very cheap daily collision damage and loss damage waiver for rented vehicles.

You can Benefit from the Gold Rush by Using the Forces that Change the Insurance Industry

Incumbent insurers have not kept up with technological change, so large chances in customer service and vast opportunities for new products and new business models arise in applying current and novel internet technologies. This brought on the InsurTech scene and their investors, who have recognized the economic potential.

In my view, the new players have just started to create massive value for their customers and investors, by performing tasks formerly executed by traditional brokers and risk-carriers. Once the world knows how much profit the pioneers in InsurTech earn, the Gold Rush will really get going.