These insurtech forces are transforming insurance

Insurance policies have been around since before time, but the insurtech industry only started to take off around 2010.

Regardless of its contemporary genesis, the global insurtech market was valued at $5.45 billion in 2022 and is expected to expand at a compound annual growth rate (CAGR) of 52.7% from 2023 to 2030, according to Grand View Research.

Insurtech has evolved into a booming competitive market with a variety of dominant players. Furthermore, the industry is thriving due to the development of AI, application programming interfaces (APIs), and the recent emphasis on diversity, equity and inclusion (DE&I) — all forces that will impact the entire insurance industry.

Insurtech’s big players

When you think about insurtech’s dominant companies, it’s essential to understand the different phases of the insurtech rollout, because within each phase are different leading players.

The insurtech industry started with “the disruptors.” This phase involved businesses such as Lemonade, Root and Hippo. It proved that upstarts could challenge incumbent insurance brands and compete to win business by leveraging the power of modern technology.

After the disruptors came “the enablers,” or technology-enabling carriers, brokers and managing general agents (MGAs) to compete with the disruptors. They included insurtechs such as Unqork, Agentero and Herald API. This phase brought modern tools and innovations to incumbents to help them fend off the disruptors.

Most recently, we’ve seen the latest phase — embedded insurance — offering a new way to leverage technology to create insurance purchasing opportunities at the point of sale (POS) and, for the first time, truly expand the insurance market by offering brand new types of policies.

So, which three influential moves are changing the dynamics of every phase of insurtech? Let’s find out.

The adoption of AI and ML

AI is permeating every industry, and insurtech is no different. Self-driving cars were once an example of a far-off sci-fi future, but now they’re a reality thanks to AI’s iterative processing and intelligent algorithms.

But how are AI and machine learning (ML) developing insurtech? AI and ML models together can analyze vast amounts of data, including historical claims, weather patterns and geographic information, to assess risk more accurately. In particular, ML algorithms can analyze images, documents, and sensory data to assess damage and estimate claim amounts, expediting claims processing.

Moreover, predictive modeling helps insurers identify high-risk customers, allowing for more accurate pricing and coverage recommendations. Not to mention the classic example of AI-powered chatbots and virtual assistants that can handle customer inquiries.

A recent report from McKinsey theorized what the future of insurance could look like in 2030 and predicted that agents would use “smart personal assistants to optimize their tasks as well as AI-enabled bots to find potential deals for clients.”

All the data amassed and analyzed by AI and ML models can help carriers, brokers and agents learn what their customers want, allowing them to identify customer needs and make more precise underwriting decisions.

And while these theories of how AI and ML can help and develop the insurtech industry may only seem like good ideas on paper, 2023 saw the launch of Sixfold, the world’s first generative AI tool designed specifically for the insurtech industry.

The application of APIs and embedded insurance

APIs have existed since the 1950s, but their continued evolution has enabled insurtech to enter a new era of efficiency due to APIs’ data-sharing abilities. Furthermore, making third-party information readily available has made data processing more accessible and cheaper, enhancing the competitive nature of insurtech.

And embedded insurance is a perfect way to leverage APIs within the industry. Embedded insurance isn’t a new concept; for example, for years, customers have been able to add travel insurance when buying flights online.

But as all insurance brokers, carriers and agents know, customers want more convenience and speed when making a purchase.

That’s why the new wave of embedded insurance is even more advanced. Compared to travel insurance, which typically offers a standard package suitable for many customers, car insurance is highly customized to individual clients, making the earlier example of embedded insurance impractical for cars.

However, Tesla recently grabbed headlines when it resolved this issue and began offering insurance as part of the car-buying process — but with a special twist. The coverage is provided as a simple add-on and uses advanced telematics to monitor driving ability, basing the next month’s premium on the previous month’s driving experience.

Diversity, equity and inclusion

It’s not only advanced technology that is impacting the insurtech industry. In recent years, DE&I has been a pressing topic.

Many insurtech businesses have realized the importance of implementing DE&I programs. If these initiatives are ignored, companies limit their business opportunities. How can they expect to succeed if they fail to accurately represent their diverse client base?

For example, actively attracting and retaining employees from various backgrounds, genders, races and cultures fosters a more inclusive work environment. It also allows insurtech firms to develop products that cater to underserved or underrepresented populations.

Many studies have shown how diverse and inclusive companies outperform their competitors. Accelerating diversity in insurance, another report released by McKinsey, stated, “At every level of the talent pipeline, insurance is more diverse than the average of other industries. Overall, it is between seven and 14% points more diverse compared to all other industries.” So, while there is still a way to go in DE&I, insurance and insurtech are ahead of the curve.

The road ahead

Insurtech is a dynamic and constantly evolving industry shaped by modern technology. And to ensure customer loyalty and business longevity, insurtech companies must remain at the forefront of technological advancements while recognizing their social responsibility to their customers and prioritizing DE&I. This is all while meeting the growing demands of customers, which include more insurance options, automation and a seamless customer experience.

Jason Keck is founder and CEO of Broker Buddha. These opinions are his own.

Also by this contributor: If your insurance organization isn’t digitizing, you’ll lose clients