What is InsurTech, Origin and History in Financial Technology?

InsurTech is a fintech subsector that is growing fast, with the global InsurTech market expected to grow at a compound annual growth rate of over 10% between 2016 and 2020, according to Technavio. The term InsurTech is closely related to the changes in the insurance industry which depends on the needs of the evolution of digital technology.

In InsurTech so far, six sectors have been established: Usage Driven Insurance, Health Insurance, Brokerage, e-commerce Insurance, Spot Insurance and Peer-to-Peer Insurance. InsurTech firms have one thing in common: they focus on consumers and digitalisation as a tool to make it happen.  In the traditional insurance industry, the user experience has been unsatisfactory.  InsurTech companies are seeking to address that.

InsurTech is not only about the management and sales channel, but also about helping new businesses to satisfy their needs like those that are appearing with the collaborative economy (driverless cars, smart homes etc.). One example is the possibility of covering trips that are offered by digital platforms such as Blablacar.

According to FintechAsia, InsurTech leverages technologies like smart contract and Blockchain technologies to benefit from higher cyber security, increased trust and lowered costs. Such technologies provide ease to numerous consumer data while getting rid of intermediary parties. Today, insurance is no longer about the transfer of balance-sheet liabilities between two parties, but lifestyle service or product offered through digital engagement.  Almost 80 percent of insurance customers want personalised and just-in-time insurance.

Friendsurance was among the first start-ups to transform the insurance market. The Berlin-based start-up founded the first peer-to-peer insurance in 2010.  The idea was inspired by a small group of people who supported each other in the event of a loss. Today, big insurance companies cover claims of any amount; however, fraud, administration, and marketing generate high costs. To avoid that, Friendsurance came up with a P2P insurance model that incorporates a smaller group into a bigger insurance pool and offers claim-free years with a cash-back bonus.

Since 2013, the insurance sector has seen an ever-growing demand for creativity, new digital technology, and disruption. AXA is among the first companies to declare its intent to become a digital insurer. It established a lab in Silicon Valley and publicized its affiliation with Facebook in 2014. At that time, many people were waiting for the market entry of the tech giants, like Apple, Samsung, Facebook, Google and Amazon.

Although the tide finally came in, it was no Tsunami. In March 2015, Google launched into the motor insurance compare market. The company unceremoniously departed just a year later. The industry heaved a sigh of relief as there had been little impact. Nevertheless, the tech giants remain the Boogie Man of the insurance industry.

With the InsurTech industry still in its infancy, many start-ups are partnering with global top insurance companies and raising millions of dollars in funding from leading VC firms. According to PwC report, about 90 percent of the insurers surveyed fear the loss of business to start-ups, with about 70 percent of insurance companies saying they have already taken action to face any new opportunity or challenge presented by fintech.

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