October 23, 2024

The insurtech revolution: How technology is changing the way Americans buy insurance

Insurtech revolution in the US has been phenomenal over the past few years and the technology has been able to meet the evolving customer requirements. The insurance market across the globe is huge, with the US insurance space being one of the largest as far as premium contribution is concerned. The intersection of insurance and technology has helped in simplifying claims processing, lead conversions, and much more and has overhauled traditional processes as well as legacy systems. It is noteworthy to mention that the COVID-19 pandemic has also contributed to the growth of the insurance tech space, emphasizing the significance of innovative solutions that emerged relatively late in the sector. 

As of 2021, the U.S. insurance industry was valued at USD1.4 Tn (in written net premiums), with life and annuity insurers accounting for 52%, while property and casualty accounted for the remaining 48%. Case in point, the global insurtech market size was valued at USD5.45 Bn in 2022 and is estimated to expand at a CAGR of 52.7% from the year 2023 to 2030. The increasing number of insurtech companies in the USA is noteworthy, primarily due to the rising volume of insurance claims and streamlined solutions offered by this new category of companies. 

Importance of insurtech in the modern insurance space

Insurtech enables large organizations to explore new options beyond traditional human efforts. Insurtech includes tracking tools like phone applications, auto-monitoring devices, and wearable technology. Customers can enjoy quick accessible mobile options that summarize coverage, liabilities, and premium information. Insurtech has also been aiding companies to become more efficient in underwriting, processing claims, and managing assets. Insurtech capital investment focuses on big data, artificial intelligence, and IoT devices.

Related reading:  Top 5 Insurance trends to watch out for in 2023

Key insurtech benefits:

For customers 

Empowering the customer : Insurtech empowers customers, enabling them to prioritize and value every aspect of their lives. It ensures that customers are a part of the process starting from registration to claims. 

Convenience and ease of access: Insurtech is mobile-friendly, and this is the reason why customers get the liberty to compare, verify and make informed decisions. They can even check the status of claims from a personal device. 

Increased security and customization: With insurtech, organizations set strict anti-spamming and security policies to safeguard the confidentiality of customer details when they transact online. It also enables the insurance company to collect and analyze customer data, thereby enabling upgraded offerings and customized products.

For insurance providers

It has plenty of advantages for the insurance sector as well, which helps insurance players save a lot of money and time. Some of the areas where it helps include customer identity verification and anti-money laundering, underwriting by automation of information collection and assimilation into the record, promotion of innovative new products along with smart contracts, reducing errors, enforcing contracts, etc. 

Insurtech can simplify various processes, such as KYC, managing claims, fraud detection and risk prevention, payment processing, etc.

Digital transformation in the US insurance market

Just like every other industry, the insurance industry has also welcomed technology with open arms. The insurance space in america, just like the banking industry, is often referred to as an out-of-date complicated, and not customer-oriented field. 2021 was said to be the most revolutionary period for insurtechs as all the above-mentioned problems gave rise to the insurtech development in the United States. 

Technology is a blessing in this industry, the pain point of which is over-complication. This is where insurance tech companies can come to the rescue and provide the most feasible solutions. Moreover, the US insurance market has been regulated since the beginning. One of the earliest signs of evolution in the insurance space was the use of scanners and complex algorithms for accurate pricing of insurance premiums.

What is digital transformation, anyway?

In conclusion, digital transformation encompasses leveraging technology, including artificial intelligence, big data, the Internet of Things, and robotics, to develop innovative solutions and enhance existing ones.

Insurtechs are transforming the digital industry in more ways than one. 

  • Underwriting: Insurtechs are using AI and ML to automate the underwriting process which includes evaluating an insurance applicant’s risk and determining the premium for their respective policy. Artificial Intelligence can dig deeper through large chunks of data such as demographics, and medical history, which in turn helps them determine their risk profile. By embracing digital transformation, organizations can unlock benefits such as improved premiums and elevated customer experiences.
  • Claims: Insurtechs are also using technology for automating claims processing procedure that includes reviewing and verifying insurance claims as well as paying out benefits to policyholders. For instance, AI and ML can be used to identify and prevent fraud and improve transparency. Various insurance claim techs are also tying up with hospitals and insurance companies to ensure optimization of the claims experience for end users by providing seamless and streamlined options.
  • Policy management: Insurtech organizations are using these technologies to automate policy management, which again includes managing insurance policies for customers. It can entail the usage of AI and ML to respond to customer queries and solve problems that would help customers manage their insurance policies online.
  • Distribution: Insurtechs also use this technology to simplify insurance purchase online. For instance, the usage of comparison sites enables customers to compare quotes from different vendors as well as pure play digital insurers that sell policies directly.
  • Product innovation: Insurtech companies are using data from various sources for several new offerings, such as discounted premiums of health insurance policies, etc. Data and analytics provide insights to insurance companies so that they can better understand and price risks, thus translating to better premiums and enriched customer experience. It also enables new business models and insurance products that might not have been flexible without technology.
  • Personalization: The biggest trend in the insurtech space right now is personalization. Data is being used from different sources such as wearables and IoT devices so that personalized products can be provided to customers with unique needs. For instance, insurance organizations can use data from wearables to create health insurance products.
  • Automation: Another dominant trend at this time in the industry is automation. Insurtech companies are using artificial intelligence for the automation of different insurance processes like underwriting and claims processing. With the help of automation, insurance players can reduce expenses, improve efficiency and enhance customer experience.
  • Blockchain: Just like every other sphere, blockchain is also making an impact in the insurtech space. Insurance companies can use blockchain to form smart contracts, which execute when certain conditions are met. Blockchain can also decrease the chances of fraud by creating a tamper-proof record of insurance transactions.
  • Usage-based insurance: Another trend in the insurtech space is usage-based insurance. This insurance enables customers to pay premiums based on their actual usage of a product or service. Usage-based insurance can allow insurers to price policies as well as offer customers feasible and affordable insurance options. 
  • “Avalanche” of data from different connected devices: By the year 2025, it is projected that there will be approximately one trillion connected devices, resulting in significant data collection that will enable insurance carriers to gain profound insights into their clients, according to McKinsey. The huge explosion of data is expected to result in “new product categories, more personalized pricing, and increasingly real-time service delivery.”
  • Insurtech partnerships: Insurtech companies are currently forming collaborations with traditional insurers to create new products and services. While traditional insurance companies offer industry knowledge and regulatory compliance while insurtech organizations bring innovation and technology expertise.

Insurtech is an exciting and rapidly evolving sector that has so much to offer. The use of cutting-edge technologies is helping insurers to create new products and enhance customer experience. This is likely to help shape the future of the industry. It is needless to say that the pandemic has fueled the growth of the insurtech space.

Insurtech has been attracting a lot of funding from investors recently. Innovation in insurance is booming with the help of this new range of companies that leverage technology at every step. Insurtechs raised USD14.4 Bn across 644 deals in 2021, beating the 2020 number by around 87%. Even though the industry has seen comparatively lesser funding last year, we are hopeful that the same will bounce back on the back of digitalization. As per a CB Insights report, insurtech funding dropped by 4% quarter over quarter in the third quarter of 2022 to hit USD 2.3 Bn, which is the lowest since the second quarter of 2020.

Some notable transactions that happened in this genre last year include Berlin-based insurtech company Wefox closing its Series D funding round at USD 400 Mn, thereby bringing its valuation to USD 4.5 Bn

In another deal, a tech-enabled provider of workers’ compensation insurance to small businesses, Pie Insurance raised USD 315 Mn in Series D funding. Coalition, a cyber insurance provider, got funding worth USD 250 Mn in Series F funding thus hitting a valuation of USD 5 Mn. Both established companies and startups in the space are well-poised for growth fueled by investments and increasing market demand. 

Key players in the insurtech space

A host of new Insuretch companies are slowly changing the US insurance marketplace. Here are some companies expected to rule this year as well. 

Zipari: Zipari, based in New York is a software company with the intention of making health insurance better for everyone. Zipari helps its clients to maximize sales performance, enhance individual self-service engagement, and streamline communication. 

Corvus Insurance: Corvus Insurance is another insurance company based in Boston. It provides several smart commercial insurance products. The insurer develops and upgrades its products in connection with technological advancements. 

Lemonade: Lemonade is a New York-based company that uses an AI-based chatbot to improve communication with customers. Users can avail of products and pay in minutes, which makes it a leading company.

GoHealth: This insurance company provides individual and short-term health insurance. It also offers a range of solutions such as major medical insurance, dental insurance, insurance by state, accident insurance, and more.

Virtual i technologies: It is a Switzerland-based insurance company that focuses on risk pricing and underwriting. The company offers an underwriting platform, which is beneficial for insurers and reinsurers. It helps clients reduce human-related mistakes, score various risks, enhance risk management practices, and speed up the underwriting process. 

Etherisc: Etherisc provides insurance for daily situations such as crypto wallet insurance. hurricane protection, crop insurance, etc. The company is transparent and leverages smart contracts that are based on blockchain technology. 

Avinew: Founded in 2016 in the USA, this is a software company that offers insurance for semi-autonomous vehicles. 

Bdeo: It is a Spain-located insurance company that offers a solution for simplifying the insurance process. It provides its clients with motor and home products. 

Dacadoo: The company is based in Zurich, Switzerland, and provides insurance services on the back of gamification, mobile technologies, AI, Big Data, and social networking.

Shift technology: This company is based in Paris and offers intelligent decisions across key insurance functions. It deals in two major areas, Health & Life and Property & Casualty. It also focuses on improving customer experiences while reducing costs at the same time.

Some startups slowly changing the entire insurtech landscape, such as Slice Labs, Bright Light, Clover Health, Oscar Health, Gusto, Go Health, Root Insurance, and Collective Health, also deserve a mention. These companies are constantly challenging themselves and coming up with unique solutions that are in line with the ever-evolving market.

Challenges in the insurtech market

Despite having so many benefits, the insurtech market has to endure multiple constraints. The challenges include a shortage of professionals skilled in advanced technologies and a lack of awareness about insurtech, among others. However, it is believed that traditional insurance will be replaced by technology-driven insurance in the form of low code technology, embedded ecosystems, AI and ML, etc. 85% of insurance organizations understand the requirement to prioritize digitalization. Let’s have a look at this on a deeper level.

Regulatory hurdles: With regulations getting introduced or current regulations being updated, insurtechs need to navigate compliance requirements constantly if they want to thrive.

Intense competition: High competition in the market consists of both traditional firms and insurtech companies. To stay ahead, insurtechs need to upgrade their solutions. They also need to work closely with traditional insurers as they look for partnerships or getting acquired by the firms. 

Data privacy and security: Ensuring the security and privacy of customer data will remain a priority for insurtechs to eradicate negative consequences for companies as well as customers. 

Difficulty in customer adoption: Insurtechs need to gain customer trust and even convince them to adopt the services.