FinTech is known and talked about for its ability to serve global users' unique financial needs with unique financial offers. This technology has proven to be helpful and innovative for consumers structuring their future as well as their day-to-day financial well-being. Whenever a situation involves an investment, whether it be time or money, there is always a level of risk involved. To function in this world, people need insurance to protect them from the risk associated with their specific situation. Insurance can be a headache when you see the payments leaving your bank account, but it is understood that you’ll never know when it’ll be useful. Enter InsurTech, an industry that is meant to provide customized insurance needs using technology resources. Like FinTech, its appeal stems from tailoring to the specific needs of the individual. 

In today’s consumer market, brand loyalty is no longer relevant. People are less likely to simply go with what they know and more likely to be open-minded to options that will save time and money. It ultimately comes down to how easy a product or service is to understand, how much it costs, and how efficient it will be in their lives. InsurTech came around in 2010 and the same manner that FinTech disrupted the financial industry, InsurTech has come to disrupt the insurance industry. Both concepts use a central sales position that differentiates them from traditional methods of services. That is online accessibility which can be scaled for traffic and continuously customize offerings that attract an audience.

From a consumer's perspective, it is important to always be mindful of options especially when it comes to finances and insurance. Acknowledging that every new business scheme is an attempt to provide options that add value, how will InsurTech stand out?

Influencing Younger Generations: The financial and insurance industries are both trillion-dollar sectors and the concept that they are headed towards being fully digital is hidden in plain sight. Millennials and Gen Z like FinTech because it’s easier to understand and comes from companies they know. Its interaction can be seen every day among young users whether they’re using e-transfer or BNPL (just an example). How often do you hear 20-year-olds discussing their insurance providers? That was the light bulb for InsurTech companies who want to make the industry something you can interact with and continually find helpful. Since it is an inevitable investment to make, transitioning to online/streamlined access catches the eye. 

Consumer-Centric: Think about this, you don’t care about a service, you care about what that service will do for you. If a 16-year-old is getting their driver's license and they see their friends getting theirs first, they'll be eager to get on the road as fast as possible. Studies found that a consumer is more likely to take insurance advice from social media, looking online, or from a friend as opposed to a broker. 

This trend is similar to what we saw with FinTech in 2021 when almost 90% of consumers began using it. Additionally, it cannot be forgotten that well over 70% of millennials stated they would be open to those services from companies they know. Now, this is not suggesting that they are the sole market that digital service providers should cater to. Especially when you consider how narrow the gap is between older generations and millennials' technology use (6% difference).

Business Model

So now we understand that the market is there and technology-enabling components, as well as customization, are the deciphering factor for consumers. However, what is the legitimate business factors that suggest profitability for companies in the industry?

Direct Sales: InsurTech’s sales structure eliminates the high premium rates seen with traditional providers. This is because there is no intermediary when selling policies which means there is no commission to give. It is direct B2C which makes the type of customer that these companies cater to widespread. The service can include everything from individual plans to retail stores, E-Commerce, Amazon sellers, and much more. The common theme among insurance plans for these customers is pure risk insurance. 

For businesses working with online sales, there are endless risks that they’d need to be covered. For example, a wealth management company could be subject to cyber-attacks and therefore would need cyber security insurance to protect against the potential losses from an attack. An InsurTech company can then evaluate the company and its assets/liabilities to make a plan that will protect its specific needs in the case of a cyber-attack. 

Flexibility and Custom Service: InsurTech has thrived in Asia, particularly in the South Eastern regions where the service focuses on fulfilling everyday needs at low rates. For example, you can buy entire micro policies for $2 from a provider like PasarPolis. This variation of the model aims to cater to an individual user's specific needs. For example, imagine you’re waiting for a delayed flight and you receive money for it. Asia has embraced this solution to their maximum ability and even holds networking events like InsurTech Connect Asia (ITC).

Asia is the perfect place to look to evaluate the performance of industries like InsurTech considering that the most successful services on the continent serve simple everyday needs. This includes (but is not limited to) video call and messaging platforms as well as online shopping. 

To get a sense of the exact custom services there are let’s look at three features of automated car insurance:

1. Pay How You Drive (PHYD)

2. Pay As You Drive (PAYD)

3. Usage-Based Insurance (UBI)

The telematics technology behind these systems is used to track and store information on users driving habits which will then determine the rate they are reduced to. For example, Desjardins Insurance has an app called Ajusto that performs a PHYD function. Following the rules of the road will reduce your insurance accordingly. The ideal scheme for this technology is to take this concept and apply it to all other insurance-regulated areas to only pay for what you need.

How is InsurTech Utilizing IoT?

The emphasis of InsurTech is strictly based on usage. In today’s society, there is a vast amount of data trackers utilized daily. This includes technology like smartphones and smartwatches at the moment. Down the road, we could see micro devices implemented in vehicles or equipment that can influence the plans offered. Plans can then be monetized and managed through IoT which has already revolutionized the way we think about technology.

The Conversation Among Investors

The investments have been piling up year over year for InsurTech companies from private equity firms. In 2020-2021 there was a gain of 21% in the number of deals made. Additionally, the industry's capital passed $15.4 billion in that same period. Investors view the industry as though it is only at the tip of the iceberg. Companies that have resources surrounding programming interfaces, AI, and big data are where the checks are sent primarily. This is because when an investor meets with the business, they can screen for solutions that they can provide and push the firm into greater profitability. 

The Takeaway

Helen Keller has a quote that reads "Alone we can do so little; together we can do so much”. FinTech, InsurTech, AI, and IoT, all of these pillars contribute to an ecosystem that businesses will use to thrive and consumers will benefit from. This technology works in an interconnected process that connects with the user. That is what separates this technology from anything before, it is an emotional bond that influences decision-making and lends a helping hand. There is no limit to what can be done with this technology, especially with the right software solutions to support the product.

Written By Ben Brown

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