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The Rise of Insuretech: Where Do We Go from Here?

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By Amy Tankersley

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Much like every financial services sector, insuretech – the use of technology to optimize the performance of insurance providers – experienced an interesting year. Although insuretech has become quite the buzz word, 2020 has significantly impacted its upward trajectory. Where do we go from here?

An offshoot of the burgeoning area of financial services innovation known as fintech, insuretech emerged nearly a decade ago when insurance firms – largely startup endeavors – began to seek ways to bring greater speed and efficiency to traditional insurance coverage. These efforts were largely driven by consumer demand for faster, simpler, more seamless service, but also sought to boost insurer profitability and reduce operational costs.

Insuretech companies are differentiated by their innovative approaches to improve and modernize the insurance value chain, commonly through the use of apps, machine learning, and other transformative technologies. In a recent episode of our Ask the Expert webinar series, “Leveraging Insuretech in the Mortgage Industry,” Adrian Jones, a corporate advisor to States Title, shared his perspective on insuretech’s market potential – particularly in the title insurance industry – as well as predictions for obstacles ahead.

“Startups recognize that insurance should cost less, be faster, be easier to buy, be more sophisticated in its pricing, and overall deliver a better consumer experience,” Adrian said. “Globally, there are at least 1,000 companies you could call an insuretech, depending on where you draw that line between incremental versus more revolutionary.”

For example, Progressive Insurance has increased market share every year since introducing its “Snapshot” telematics devices that measure driver quality and use that data to determine a price for insurance, Adrian said.

“You can also go to a website like myhippo.com or ourbranch.com and get home, auto, or sometimes both in a matter of two minutes,” he said. “It’s no longer, ‘15 minutes can save you 15 percent.’ It’s two minutes. That has implications across every different type of insurance. There’s no area that’s untouched.”

According to Research and Markets’ Global Insuretech Market: Growth, Trends and Forecast (2020-2025) report, global insuretech market revenue was valued at $5.5 billion in 2019 and is expected to nearly double by 2025. Growth will be fueled by simplification of the claims process, improved communication with clients, and the capabilities to implement automation, Research and Markets predicts.

After COVID, any point of physical interaction between the insurer and the customer is a big focus area right now to get that automated,

 Adrian said.

Since their inception, insuretech companies have attracted funding from legacy players and investors worldwide. Global accounting firm KPMG noted in its Pulse of Fintech H1 2020-Global report that 2019 was a “massive” year for global fintech investment. Total global investment activity in the insuretech space eclipsed $13 billion in 2019, only a slight decline from nearly $16 billion in 2018, according to KPMG.

KPMG also noted in its report that challenges posed by the COVID-19 pandemic temporarily slowed mergers-and-acquisitions activity. However, the sudden, increased demand for digitized services prompted many investors to reward “insuretech challengers” – companies with scalable business models that are growing their topline revenue and expanding their offerings into new markets.  

Sharing trends to watch for in insuretech, KPMG said some more mature or legacy insurers will likely make acquisitions “in order to attract additional investment and make a future initial public offering (IPO) more appealing.” The KPMG report cited States Title’s 2019 acquisition of North American Title Group, and the $123-million funding round we announced in May 2020 as an example of an insurer’s M&A strategy that significantly increased transaction volume and market presence. It also called attention to digital homeowners and renters insurance provider Lemonade’s IPO in July 2020 – the year’s strongest IPO debut of a U.S.-based company.

Clearly, the insuretech sector is on the rise, but certain challenges will determine its future trajectory. Because the insurance industry is one of the world’s oldest financial services, a handful of legacy companies dominate the market, especially in title insurance, Adrian noted.

“There are incumbents who are very much embracing what’s going on in insurance technology, and there are certainly others who, for various reasons, have lagged – and it’s not always the ones that you expect,” Adrian said. “But there is certainly a large group of insurers who are very pleased with the business that they have built, and they see that business going on for quite some time. And frankly, they’re just not worried about anyone disrupting it, because nobody has been able to do so, so far.”

Shifting regulatory schemes have stifled innovation and change, he added.

This is what’s so frustrating,” Adrian admitted. “In the world of mortgage tech in general, and certainly insuretech, oftentimes it’s not that the technology doesn’t exist for the best consumer experience. It’s that some arcane piece of regulation stands in the way.

For these reasons, the nearly 150-year-old title insurance industry – which is highly regulated at the local, state, and federal levels – presents the biggest opportunity in insuretech, Adrian predicted.

“Title is a market which everybody wants to innovate,” he said. “Innovation has been needed because of the oligopoly that exists in that market, the lack of focus on the customer, and lack of focus on making the customer’s life as easy as possible.”

States Title “is very much at the forefront of that,” Adrian said.

“You’re using the standard ALTA product that everybody expects. Customers are closing their loans days and even weeks faster. They’re raising their pull-through rates. They’re simplifying their operations. States Title is delivering a better customer experience, and that is the true measure of a long-term, sustainable insuretech,” Adrian said.

Correlated services like appraisals and homeowners insurance are also ripe for the same level of innovation, Adrian predicted, especially in the post-pandemic world.

“Pre-pandemic, insurers would send someone out to actually visit, inspect the home, make sure it was not about to fall apart, and there wasn’t some big unknown hazard. Now a number of companies will actually pay you if you do your own inspection by holding up the phone and taking it around,” he pointed out. “They have AI-driven ways of recognizing what’s actually in the home and recognizing whether perhaps they need to send a human inspector.

“On the claim side, I recently saw a claim of a townhouse that had burned, and the claim was managed partially with a Matterport tour, just like a lot of real estate agents are doing,” Adrian added. “Matterport is a fabulous technology, but just as you’re using it in real estate, we’re using it in insurance to better settle claims.”

Appraisal, title, and obtaining homeowners insurance “create difficulties and add costs to homebuyers at a time when they’re already under a tremendous amount of stress,” Adrian concluded.

Let’s smooth all of those frictions. Ultimately, that is the best thing that could be done for the real estate business.