Like many legacy markets poised for change, the insurance industry has already seen its first wave of innovation. Similar in many ways to the initial novelty of opening a bank account online, insurtech 1.0 brought a centuries-old product into the digital era by giving customers a way to apply for insurance online. Customer excitement translated into investor excitement, and everybody rode off into the sunset, says TechCranch.
$18.3 billion was spent last year on insurtech startups across venture capital, private equity and M&A activity.
InsurTech Focusing on customer experience
Well, not quite. It seems some might have flown a little too close to the sun instead: Focusing on customer experience on the front end leads to rapid growth indeed, but failing to focus on underwriting on the back end can lead to a very large number of claims, very quickly.
That’s because insurance, fundamentally, is about risk. It follows that digital insurance innovation should primarily focus on digital underwriting innovation — in essence, using technology to correctly assess and price risk in real time.
InsurTech companies` needs
According to InsurTech Market Outlook, the truly magical (and most misunderstood) fact is that everything else can simply flow from that innovative underwriting foundation: an instant, digital customer experience, sustainable growth unburdened by excessive claims and the ability to embed insurance in other digital journeys, creating better experiences for consumer, partners and insurtechs alike.
InsurTech companies need to keep pace with the demand they have created through sustainable unit economics and wise risk management (see 100 InsurTech Startups List).
By focusing first on growth and then on underwriting, the insurtech 1.0 wave essentially flowed in the wrong direction. But there is plenty of time to reverse the tide — consumers’ enormous appetite for convenient, modern insurance products has only been whet.
So what does focusing on next-generation underwriting really look like, and how should you build upon it? Here’s our five-step playbook for winning in the insurtech 2.0 era.
Refocusing on underwriting innovation starts with refocusing your business
Ask yourself the following questions:
- Do your primary KPIs include ways to measure underwriting outcomes alongside traditional growth metrics?
- Do a majority of your employees work on underwriting directly or indirectly?
- Do your company goals include explicit underwriting goals?
- Can all your employees articulate how/why underwriting is a differentiator at your company?
If you’ve answered no to one or more questions, it might be worth rethinking your goals, metrics and organizational structure.
The Exchange divides insurtech startups into three categories: neoinsurance providers, insurtech marketplaces and insurtech enablers.
Briefly, neoinsurance providers are companies like Root, Metromile and Next Insurance, which use technology to underwrite and sell insurance in an updated manner; these companies also often have optimized mobile experiences.
Insurtech marketplaces came back
Insurance Marketplaces like The Zebra, Gabi, Insurify and others provide a way for consumers to better identify their insurance options. And, finally, there are companies like AgentSync, which fit neatly into our third category of firms that help other companies in the insurance business digitize their operations or otherwise modernize.
Insurtech marketplaces came back into our view when The Zebra put together a $150 million Series D earlier this month and released a host of metrics regarding its growth, and Insurify dropped the news that it is partnering with Toyota.
This morning, let’s discuss insurtech’s 2021 as a whole, peek at some preliminary 2022 venture data and then dive deep into what we’ve collected regarding growth among insurtech marketplace players.
The Exchange has data and other details from The Zebra, Insurify, Wefox and more.
This year is proving lucrative for the insurtech market, at least from a venture capital perspective. Normally I’d make a joke about how unprofitable some neoinsurance providers are at this juncture, but because our focus is elsewhere, bringing up the fact that, say, Lemonade’s adjusted losses in the final quarter of 2020 were around 150% of its revenue is kind of irrelevant.