Charting the Next Wave in Insurtech Startups
From regulatory compliance to product innovation, learn how to navigate the challenges of insurtech.
To succeed, insurtech startups must overcome regulatory and technical obstacles. Lu Zhang, founder and managing partner of Fusionfund and Ryan Taylor, Investor of Fusionfund, explains why insurance technology startups need to concentrate on specific markets, adhere to regulations, establish beneficial partnerships, and innovate their products.
According to Acumen Research and Consulting’s December 2022 Insurtech Market Size analysis report, the market will reach $166.4 billion by 2030.
This is unsurprising, given the global value of insurance is $6 trillion, according to Statista. It also makes sense because insurance, with its reliance on actuarial predictions, paper trails, investigations and physical examinations for claims, is particularly apt for technological enhancements.
Those enhancements can serve effectively in many insurance subsectors, such as commercial P&C insurance, reinsurance and underwriting. The technological tools that can contribute to innovation in these areas are diverse and include approaches such as AI, cloud computing and IoT. These tools can then be applied to various insurance processes, whether claims processing, automated monitoring with sensors or other key tasks.
Integrating technology with the traditional insurance model is a promising new area for innovation and improvement. It can supercharge overall efficiency, boost customer experiences, enhance automated claims processing, drive AI-driven risk projections and generate entirely new fields of risk management.
However, the insurance industry has sizable challenges, even with this infusion of new technology. For example, the regulatory landscape can be complex, creating difficulties for incumbents, let alone startups that attempt to enter and compete in the market. Simultaneously, there is an ongoing shortage of technologically skilled personnel. To make matters worse, teams are often struggling with outdated software and IT systems. Beyond technology, it’s critical to have an excellent command of the insurance industry itself, including the complexity of regulatory compliance and cybersecurity.
These challenges create opportunities for insurtech startups. If a company can offer a product that solves a pain point that insurance firms are struggling with, the profits can be robust and reliable over the long term. To get noticed, the solution must be innovative while working accurately for insurance firms. It also must be easy to integrate into their existing processes.
4 Strategies for Insurtech Startups’ Success
Insurance is a big tent, so it’s usually wisest to focus on one niche subcategory and service it only. However, it’s often hard to know which areas to focus on for the best chance of competing. Here are some ideas insurtech startups should keep in mind:
1. Understand insurance regulations
Because insurance coverage is so deeply intertwined with the public interest, the industry is heavily regulated. Hence, your startup needs to make it your first priority to stay current with regulations. To do this, you must commit to a position of continuous monitoring. It’s even worth it to purchase services for automated tracking of regulatory changes and compliance reporting to assist with this.
You shouldn’t rely entirely on your own staff and internal research, even if it’s done thoroughly. Instead, make a point of partnering with legal and regulatory experts specializing in insurance. This is a complex territory, and your efforts are better spent on your technology rather than making sense of endless regulatory verbiage. It’s much better to let the experts help guide your product development, marketing strategies and compliance processes.
For example, a few years back, popular insurtech Lemonade Insurance faced scrutiny over its use of AI and big data in underwriting and claims processing. To avoid legal challenges, Lemonade had to navigate various regulations to ensure compliance with existing insurance laws concerning data usage and privacy.
2. Form strategic partnerships
Others can help you navigate not just the regulatory landscape but the whole world of insurance, including niche areas. Fostering connections with carriers can provide valuable insights into their needs, expectations and common pain points. Be sure to start reaching out to them early in your startup process.
You want to present your startup as offering a win-win scenario for insurance industry partners, one in which their insights can shape the development of tools they’ll ultimately use. If all goes well, that can turn into sales of the tool to the very companies that helped you develop it.
Consider Allianz and Allstate’s $265 million investment in Next Insurance, for example. The insurtech company is largely unprofitable, but it can do things the bigger companies can’t when it comes to developing products more seamlessly.
3. Build the right product the right way
The difference between the right and wrong product will mean the difference between flourishing or failing, so be sure to put care and thought into what you’re developing. Though your specific solution will have to fit whatever niche you’re targeting, there are some key areas to bake into any insurtech offering.
First, diligent regulatory compliance must be a guiding principle in product development. That naturally leads to issues with data security and policies, so it’s crucial to prioritize cybersecurity and data protection. Putting data security front and center will also allow you to more effectively communicate to your customers about data usage, storage and protection practices — which is essential to building trust, especially considering that Deloitte found only 34% of consumers believe companies are transparent about how they use the data they collect.
4. Develop your defensibility strategy
Critical thought should be placed on how to build long-term defensibility into your insurtech startup. Historically, two approaches have worked for firms in this space: building proprietary data sources that enable superior risk measurement and mitigation or building network effects that provide compounding benefits to your client base.
Without a long-term defensibility strategy, if your product proves successful, it will be noticed by competitors. They’ll quickly learn from your success and emulate your product, which can erode your margins and client base. Therefore, you should understand how your firm will protect its position in the market once it has been established.
Now is a great time for enthusiastic insurtech startups, but only if leadership commits to a levelheaded and diligent approach to the mission. The same opportunities presented by the insurance sector also create thorny problems to be solved — and that’s a challenge that should never be taken lightly. The good news is that, with these strategies, you can give your startup every chance to create a winning product or service.
Image Source: Shutterstock
MORE ON INSURTECH
