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 portmanteau of “insurance” and “technology” that was inspired by the term Fintech. The belief driving insurtech companies is that the insurance industry is ripe for innovation and disruption. Insurtech is exploring avenues that large insurance firms have less incentive to exploit, such as offering ultra-customized policies, social insurance, and using new streams of data from internet-enabled devices to dynamically price premiums according to observed behavior.

BREAKING DOWN 'Insurtech'

Insurance is an old business, one of the oldest, and it tends to favor those with deep pockets and a long experience in the market. Traditionally, broad actuarial tables are used to assign policy seekers to a risk category. The group is then adjusted so enough people are lumped together to ensure that, overall, the policies are profitable for the company. This approach does, of course, result in some people paying more than they should based on the basic level of data used to group people. Among other things, insurtech is looking to tackle this data and analysis issue head on. Using inputs from all manners of devices, including GPS tracking of cars to the activity trackers on our wrists, these companies are building more finely delineated groupings of risk, allowing products to be priced more competitively.

Insurtech Innovations

In addition to better pricing models, insurtech startups are testing the waters on a host of potential game changers. These include using deep learning trained AIs to handle the tasks of brokers and find the right mix of policies to complete an individual’s coverage. There is also interest in the use of apps to pull disparate policies into one platform for management and monitoring, creating on-demand insurance for micro-events like borrowing a friend's car, and the adoption of the peer-to-peer model to both create customized group coverage and incentivize positive choices through group rebates.

Challenges for Insurtech

Although many of these innovations are long overdue, there are reasons why the incumbent players are so reluctant to adapt. Insurance is a highly regulated industry with many layers of jurisdictional legal baggage to deal with. As such, the major companies have survived this long by being incredibly cautious, which has made them shy away from working with any startups - let alone startups in their own, very stable industry. This is a bigger problem than it sounds, as many of the insurtech startups still require the help of traditional insurers to handle underwriting and manage catastrophic risk. That said, as more insurtech startups garner consumer interest with a refined model and a user-friendly approach, they may find that the incumbent players warm to the idea of insurtech and become interested in buying up some of the innovation.

RELATED TERMS
  1. Insurance Dashboard

    An interactive digital tool that combines and manages all aspects ...
  2. Assigned Risk

    Assigned Risk is when an insurance company is required to provide ...
  3. Insurance Premium

    An insurance premium is the amount of money that an individual ...
  4. Black Box Insurance

    Black box insurance is a program that offers premiums based on ...
  5. Classified Insurance

    Classified Insurance is coverage provided to a policyholder that ...
  6. Insurance

    Insurance is a contract (policy) in which an insurer indemnifies ...
Related Articles
  1. Investing

    How to Invest in the Growth of Insurtech

    Here's how insurtech is providing a new opportunity for investors.
  2. Tech

    How Big Data Has Changed Insurance

    No longer confined to technology, big data has become integral to providing solutions to the insurance industry's long standing challenges.
  3. Insurance

    15 Insurance Policies You Don't Need

    Learn how to save money by saying "no" to unnecessary coverage.
  4. Insurance

    The History of Insurance in America

    Insurance was a latecomer to the American landscape, largely due to the country's unknown risks.
  5. Financial Advisor

    Buying a Life Insurance Policy? Read This First

    Knowing who needs life insurance, how it works and the different types of insurance can help consumers make informed decisions about this product.
  6. Insurance

    12 Car Insurance Cost-Cutters

    Car insurance rates are on the rise. If car insurance costs are dragging you down, use these tips to free yourself from some of the extra weight.
  7. Insurance

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  8. Financial Advisor

    Getting Life Insurance in Your 20s Pays Off

    Find out how Americans in their 20s can benefit from a well-thought-out life insurance policy, especially if they are able to build cash value for retirement.
  9. Insurance

    How to Find the Right Car Insurance

    Finding the right car insurance can be difficult. However with these strategies, you can get the most for your money, protect your assets and your health.
Hot Definitions
  1. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  2. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  3. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  4. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  5. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  6. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
Trading Center