In an era when technology infiltrates every aspect of our lives, the insurance industry is undergoing a revolutionary transformation, driven by the rapid advancements in digital technologies. Insurtech (a portmanteau of “insurance” and “technology”) encapsulates this wave of change, aiming to make insurance more accessible, efficient, and tailored to individual needs.

This guide will take you on a journey through the ins and outs of insurtech, exploring how cutting-edge technologies such as AI, blockchain, the internet of things (IoT), and machine learning (ML) are redefining the traditional insurance landscape. From digital platforms that offer seamless policy management to innovative models like peer-to-peer (P2P) insurance and on-demand coverage, we’ll delve into the various facets of insurtech that are setting the stage for a new era in insurance.

What is insurtech?

Insurtech refers to the use of technology innovations designed to squeeze out savings and efficiency from the current insurance industry model. Insurtech is a rapidly growing sector within the broader financial technology (fintech) space.

Types of insurtech

Insurtech has introduced several types and models that are revolutionizing the insurance industry. Each type focuses on leveraging technology to improve various aspects of insurance, from policy management to claims processing.

Digital brokers and platforms: These insurtech companies operate as digital-first insurance brokers or platforms, offering a range of insurance products online. They simplify the process of comparing and purchasing insurance, often providing enhanced customer experiences through user-friendly interfaces and personalized recommendations.

P2P insurance: P2P insurtech models involve groups of individuals pooling their premiums together to insure against a shared risk. In some models, unclaimed money can be returned to members or donated to charity, fostering a community-based approach. Lemonade initially started with a P2P model, and although it is evolving, the company still represents a modern take on pooling resources for insurance.

On-demand insurance: This type allows customers to purchase insurance coverage instantly and for a specific duration—often just for when it’s needed. It’s popular in travel, gadget, and short-term event insurance. 

Telematics and usage-based insurance (UBI): Particularly prevalent in auto insurance, telematics and UBI adjust premiums based on the actual usage or behavior of the policyholder. This is made possible through devices that track driving behavior, distance traveled, or other relevant metrics. Root Insurance offers car insurance based on driving behavior, tracked through a mobile app.

Parametric insurance: Unlike traditional insurance that pays out after assessing the damage, parametric insurance triggers a predetermined payout if certain parameters are met, such as a hurricane reaching a specific wind speed or an earthquake of a certain magnitude. Jumpstart Insurance provides earthquake insurance that pays out based on the intensity of the quake, not the incurred damage.

Microinsurance: Targeting low-income customers or those requiring small-scale insurance coverage, microinsurance offers highly affordable policies with low premiums and low coverage limits. It’s often used in developing regions for health, life, or property insurance. Bima delivers microinsurance products to underserved families in emerging markets, focusing on health, life, and accident insurance.

Blockchain-based insurance: These insurtech models leverage blockchain technology for transparency, fraud prevention, and efficient claims processing. Smart contracts automate payouts when certain conditions are met, without the need for traditional claims processes. Etherisc develops decentralized insurance applications, aiming to make the purchase and sale of insurance more efficient and cost-effective.

AI and ML: Insurtech companies using AI and ML focus on enhancing underwriting processes, personalizing policies, automating claims handling, and improving customer service through chatbots and predictive analytics. Lemonade utilizes AI for everything from handling customer inquiries through its chatbot “AI Jim” to processing claims and underwriting policies, aiming for fast and efficient service.

Cyber insurance tech: With the rise of cyber threats, some insurtech companies specialize in offering cyber insurance, providing coverage for data breaches, cyber attacks, and other digital risks. CyberCube provides data-driven analytics and modeling to help insurers understand and underwrite cyber risk more effectively.

Health and wellness tech: Focusing on health insurance, these insurtech companies often integrate with wellness apps and health-tracking devices, offering incentives for healthy behaviors and personalized health plans. Oscar Health focuses on health insurance with a tech-driven approach to customer service and care management, encouraging healthy habits through its app.

Insurtech versus traditional insurance: Business model benefits

Insurtech offers a more technology-driven, efficient, and customizable approach to insurance, whereas traditional insurance provides established reliability, broader coverage, and personalized human service. The future of the insurance industry may well see a blending of both approaches, leveraging the strengths of each to meet the evolving needs of consumers.

Insurtech and traditional insurance represent two approaches to offering insurance services, each with its own unique features, strengths, and challenges. Here’s a comparative overview:

Insurtech

  • Technology-driven: Insurtech relies heavily on technology such as AI, big data, and blockchain to streamline operations, from underwriting and claims processing to customer service.
  • Customer experience: Focuses on improving the customer experience with user-friendly digital platforms, mobile apps, and automated processes, offering quick and easy access to insurance services.
  • Innovation and flexibility: Insurtech companies are known for their innovative products and services, including on-demand insurance, P2P models, and personalized policies based on real-time data.
  • Speed and efficiency: The use of automation and digital processes allows for faster policy issuance and claims settlements compared with traditional methods.
  • Data utilization: Insurtech utilizes extensive data analysis for risk assessment, pricing, and customizing insurance products, often leading to more tailored and competitive offerings.

Traditional insurance

  • Established relationships: Traditional insurance companies have long-standing relationships with customers and a deep understanding of the insurance market.
  • Regulatory compliance: They have extensive experience navigating the complex regulatory environments of the insurance industry, which can be an advantage in maintaining compliance.
  • Broader coverage options: Traditional insurers often offer a wide range of insurance products and coverage options, backed by years of actuarial data and experience.
  • Personalized human service: Many customers appreciate the personalized service that comes from interacting with insurance agents and brokers, which can be particularly important in complex insurance matters.
  • Risk management: Traditional insurance companies have established risk management practices and reinsurance arrangements to protect against large-scale losses.

The insurtech industry is poised for significant transformation, driven by rapid technological advancements and evolving consumer expectations. The intersection of insurance with cutting-edge technologies such as generative AI, blockchain, and the IoT is reshaping how insurance products are designed, priced, and delivered. 

Parametric insurance to be top area of demand for insurtech

Parametric insurance is a type of insurance that differs significantly from traditional indemnity insurance. Instead of compensating for the actual loss incurred, parametric insurance pays out a set amount based on the occurrence of a specific, predefined event. While the concept isn’t new, technological advances are priming parametric insurance to become a game changer in 2024, per EMARKETER’s Fintech Trends to Watch in 2024 report.

Data collection and risk modeling are a few ways that insurers can make the most of parametric opportunities. National weather services and specialized agencies possess both the infrastructure necessary for extensive data collection and years of data sets that can be integrated into parametric risk models. Advanced risk models powered by AI will play a crucial role in forecasting increasingly unpredictable weather events. Presently, Verisk’s AIR Worldwide provides a hurricane catastrophe model tailored for the US, alongside the First Street Foundation Wildfire Model.

Generative AI will transform P&C insurance 

The insurance sector, valued at $791.14 billion in 2021 (according to direct premiums reported by the National Association of Insurance Commissioners), is poised for significant transformation due to generative AI in the coming three years, per our ChatGPT and Generative AI in Insurance report. This impact will be most pronounced in personal lines of insurance, where the risks and products tend to be simpler. 

Generative AI holds the promise of adding significant value throughout the core operations of the insurance industry. However, a considerable number of property and casualty (P&C) insurers are expected to focus initially on claims operations in their journey to adopt generative AI, according to EY. This preference stems from the quicker ROI that claims operations tend to offer compared with other segments of the insurance life cycle. The potential for substantial value generation in claims operations—through improved efficiency, precision, and an elevated customer experience—positions it as an appealing entry point for the implementation of generative AI.

Investments in insurtechs are steadily growing

During Q3 2023, the worldwide insurtech market grew 19.8% in investment, securing more than $1.1 billion in new funding even when the size of the average deal fell by 16.4%, according to Gallagher Re’s Global Insurtech Report as cited by Insurance Business. Much of this growth was driven by P&C, which saw a 19.8% rise in investment. The number of insurtech deals climbed in Q3, from 97 to 119, with P&C leading the pack at 90.

In 2021, the global insurtech sector was estimated at $14.60 billion and is projected to grow at a compound annual growth rate of 49.4% between 2024 and 2032, culminating in a value of $162.12 billion by 2027, per Innovaco Solutions.

AI and insurtech 

Insurers are relying more on AI to mitigate the risks and costs associated with climate change as weather-related incidents become more common. This technology has the capability to provide communities with data-driven recommendations to prepare for potential climate-related disasters, and offers client-facing teams readily available data to help make insurance accessible in risk prone areas.

Chatbots: This technology enhances the efficiency of processing insurance claims and supports adjusters in their investigations by delivering apt information promptly. It also enables the rapid collection of data related to policy coverage and claims, facilitating faster aid to customers.

Prediction and prevention: AI-powered data analytics enables insurers to predict an increase in claims due to weather trends. This technology also offers policyholders data-informed recommendations, assisting communities in bracing for potential climate-related emergencies.

Better marketing campaigns: “Generative AI can help insurers better segment customers by identifying patterns that humans could not spot. Insurers can then target customers more efficiently,” according to our ChatGPT and Generative AI in Insurance report.

Fraud detection: “Existing AI models for fraud detection often draw upon limited data sets that have a small percentage of fraudulent cases,” per the report. “Synthetic data can improve model training by producing a greater share of claims that do not fall in line with expected behavior.”

An example of a company utilizing AI is San Francisco-based insurtech Betterview. The company created Roof Age AI, a tool that can offer a better calculation of a roof’s age. This is crucial for P&C insurers because the typical appraisal of roofs can be between five and 15 years off from the actual age. Insurers might also look into permit data to ascertain the roof’s age, but often these records are either incomplete or not up to date.

Betterview reports that inaccurate roof age estimates lead to approximately $1 billion in lost premiums annually. Achieving more precise estimates could reveal frequently overlooked risk factors, including structural weaknesses, damage from environmental forces, and the potential for collapse.

analyst estimates: provider & consumer interest in select gen AI apps in insurance
A chart showing EMARKETER analyst estimates on provider and consumer interest in select generative AI applications in insurance. (Subscribers only)

Cons of insurtech companies relying too heavily on AI

While there has been success in implementing generative AI in insurtech for better customer service via chatbots and facilitating claims automation through ChatGPT, some insurtech companies have encountered serious challenges in their journey to integrate AI technology. Thanks to underwriting and pricing errors, leading insurtech firms like Lemonade, Root Insurance, and Hippo are mitigating these challenges to reach profitability. 

For instance, these companies have faced challenges in gathering the essential data needed for precise AI calculations, leading to financial setbacks and drops in their stock values. Additionally, they have encountered regulatory hurdles, such as restrictions on data utilization and pricing tactics, as they attempt to revolutionize the industry.

Top insurtech companies

Insurtech companies are recognized for disrupting traditional insurance models by leveraging technologies like AI, big data, and IoT, to create more customer-centric, efficient, and flexible insurance products. The insurtech landscape is dynamic, with new players emerging regularly, driven by continuous innovation and changing consumer needs.

Lemonade: Known for its use of AI and behavioral economics, Lemonade offers homeowners, renters, and pet health insurance, and is distinguished by its digital-first approach and customer-centric model.

Oscar Health: Focused on health insurance, Oscar uses technology to simplify the healthcare experience, offering user-friendly interfaces and customer-focused services.

Root Insurance: Specializing in car insurance, Root uses smartphone technology and data analytics to base rates primarily on driving behavior, offering a more personalized insurance experience.

Hippo Insurance: Hippo offers modernized home insurance using smart home technology for proactive home protection, along with a streamlined application and claim process.

Ethos Life: Ethos focuses on life insurance, offering a streamlined online application process without medical exams, and utilizing data analytics for rapid underwriting.

Metromile: Known for pioneering pay-per-mile car insurance, Metromile charges customers based on the actual distance they drive, tracked through an in-car device.

Next Insurance: Targeting small businesses, Next offers tailored insurance products for various business types, with a focus on simplicity and accessibility.

Cuvva: Based in the UK, Cuvva specializes in short-term car insurance, providing flexible, on-demand coverage through its mobile app.

Clover Health: A US health insurance company focusing on Medicare Advantage plans, Clover uses data analysis and preventive health strategies to improve care for its members.