“When it comes to technology, the giants shaping the industry are trailing 20 years behind. They have vast stores of data, but aren’t leveraging them to improve the standard of service or care.”
– Josh Kopelman, First Round Capital
Insurance Technology startups, or InsureTech are disrupting the insurance market at a breathtaking pace. A sector that once dominated by the oldest Fortune 500s like Aetna, Cigna, Blue Cross Blue Shield and the biggest of them all, United Healthcare are being blindsided by competitive challengers. Insurance is a $1.3 trillion market in the US ($4 trillion worldwide). One of the most regulated industries, employing more than 2 million people, it accounts for 2% of the nation’s workforce. As older companies race to get on board with technology’s progress, new companies are staking their claim with a combination of catchy personal marketing, savvy use of data and technology, and a promise to end the complicated and intimidating process of choosing insurance.
InsureTech firms raised an eye-popping $2.56 billion dollars in 2015, with New York City and Bay Area mavericks leading the way. In the first quarter of 2016, $575 million dollars was raised by two of New York City’s 77 InsureTech companies alone: Oscar and Flatiron Health. Oscar’s last round of funding from Fidelity Investments took the company’s valuation to $2.7 billion. Among New York’s other InsureTech stars, Lemonade is innovating with its peer-to-peer insurance model. In this model, insurance broker groups are formed and premiums are split between the group fund and the insurer. PolicyGenius’ user friendly website compares insurance policies and costs. The company followed up the $5.3 million it raised in June 2015 with a $15 million largess in January 2016. Zenefit is a leader in the Bay Area, with a valuation of $2 billion. In April, Trov raised $25 million to build a millennial focused on-demand insurance platform, which allows customers to insure single items like an expensive bike or computer. Josh Kopelman also noted, “It’s abundantly clear that today’s health insurance market is broken.” Seeing the opportunity, he provided Clover Health with $4 million in funding for its Medicare-focused offering.
InsureTech companies are characterized by a more personable approach to insurance which was led by retail (or direct-to-consumer) asset insurers like Aflac, Geico and Progressive. The Aflac duck, the educated gecko and Flo have become iconic personalities with immediate brand recognition. Oscar’s animated ads have quickly become a source of amusement on New York City subways. MetroMile’s graphic Paying/Not-Paying campaigns make its pay-per-use car insurance model clear and direct. Helped by building an emotional connection with consumers, startups are selling their services online at lower prices and increased speed, with the promise of higher quality customer service and simplicity of use.
By focusing on the customer’s desire for simplicity, accessibility and value, InsureTech companies harness data, design and technology to update the experience of buying insurance and to shift the perception of how insurance is done. InsureTech mavericks have put the old guard on alert, as Henri Dolino of Desjardins sums up: “It’s all about listening to the voice of the customer, understanding the changes and shifts in expectations…” InsureTech has put customers in the spotlight of insurance marketing. The smart money is on it; it’s not hype. InsureTech is poised to become the new normal.