Insurtech: the new face of insurance

974 companies in 53 countries for 16.5 billion dollars investment. It is the insurtech industry, which in recent years has undergone a real boom. In the first half of 2016 the number of transactions has almost doubled compared to the same period in 2015, reaching 77 operations. Insurtech platforms are estimated to grow by 34% and will drive an overall increase in Fintech revenues from the 175 billion dollars of 2016 to 235 billion by 2021 – according to a study by Juniper Research, Fintech Futures: Market Disruption, Leading Innovators & Emerging Opportunities 2016-2021.

But what are insurtech companies? They are mostly start-ups, focused on the development of new paradigms for the usage of traditional insurance coverage through new technologies such as artificial intelligence, the Internet of Things, blockchain and Big Data. These companies are operating a real revolution in the insurance sector – which is worth 5 trillion dollars globally – so much so that international venture capital funds and institutional investors all over the world have increased their support to technological innovations in the insurance industry. Indeed, otal investment in insurtech start-ups has increased by almost 60% from 2011 to the present.

For example, the Berlin-based start-up Clark, the first German digital insurance broker, collected $13.2 million in a single investment round. It sells insurance products by more than 160 companies, helping customers to find the perfect service thanks to its robo-advisor technology that mixes artificial intelligence and analytic tools.

Although according to research by Oxbow Partners 50% of insurtech companies operate mainly in the distribution sector – thus threatening insurance consultants – many start-ups don’t oppose to traditional channels but try to be “efficiency enablers” within insurance companies. Indeed, more and more big insurance companies are taking part to this phenomenon. For them, the main challenge is to automate the process of subscriptions, still very limited today, unsing advanced evaluation algorithms and machine learning tools that can improve risk analysis.

In this sense, January has seen the announcements of Axa Strategic Ventures – AXA Group investment fund – and Helvetia Insurance. The Swiss group that has launched its own Venture Fund, through which 55 million Swiss Francs (just over 50 million Euros) will be invested in 25 insurtech start-ups. The goal, for all the big companies, is to attract expertise, solutions and technologies that can contribute to the digital transformation of the main activities of the value chain.

Among the main trends, that of the so-called connected insurance is the most active: they are start-ups that use IoT technology to innovate the insurance industry and have already attracted 81% of the whole venture capital insurtech investment.

Three business lines will be most affected by insurtech: Motor, Home and Health. Among these, Motor appears to be the most technologically advanced. In fact, according to a report by consulting firm Strategy& in collaboration with PWC, market experiences and adoption cases in the Motor field already show Insurers can reach great benefits in terms of MTPL claims frequency and risk selection, thanks to the new systems developed by insurtech start-ups, which allow precise data monitoring of vehicles and drivers.

The Connected Home too – i.e. the Internet of Things applied to the house – presents great scope for optimization in terms of development of new insurance policies. In this field, however, the process towards digitization is still in its infancy. The main interest is definitely in solutions for the smart home, that can  enhance the safety but also enable insurers to collect data on the living habits of people – a field, this, that is still today essentially unexplored by insurtech companies.

On the contrary, the healthcare segment shows a great potential, especially in Italy. First of all, overall health expenditure is foreseen to grow (especially the private component) due to demographic trends. Moreover, 95% of the 30€ bln of private expenditure is not efficiently allocated. Finally, there are increasing health needs not yet addressed by the health system: accessibility and prevention. Insuretech, especially through IoT-related technologies, can fill these gaps and improve healthcare efficiency both in terms of accessibility and quality.