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The rapid pace of digitalization has made one thing clear: When technological developments enhance one sector, consumers expect to see those upgraded capabilities applied to other industries as well.
The insurance industry is no exception.
Indeed, traditional insurance carriers have been feeling more and more pressure to modernize to satisfy growing consumer expectations. Most, however, were slow on the draw, essentially creating the perfect window of opportunity for new players–InsurTechs–to shake up the industry through various means of innovation like AI, machine learning, telematics, automation, and many more. These distinctive tech stacks became their unique selling point, enabling them to stand out from the competition and meet customers’ expectations better than their legacy counterparts.
Though InsurTechs continue to proliferate, anchoring business models solely on product differentiation has become an insufficient way to spark significant growth. In order to sustain their market position, many of these relative newcomers have pivoted away from direct-to-consumer (DTC) approaches to instead establish partnerships with more traditional insurance carriers and agents—their former competitors.
For the average consumer, buying insurance can be a baffling experience. Throughout the process of quoting, applying, and purchasing a policy, or within the process of filing a claim, policyholders have come to expect endless form-filling and aggravation. This reluctant acquiescence, however, has been diminishing—consumers want faster and more personalized offerings from their insurers with as little hassle as possible. But delivering a customer-centric experience has not generally been traditional insurers’ forte, as they lacked the innovative technologies necessary to tailor and optimize multi-channel services.
Enter InsurTechs, the first wave of insurance technology companies that were built to take over parts of the value chain by leveraging innovative tech solutions to meet the market demands that traditional carriers couldn’t fulfill.
InsurTechs leveraged big data and advanced analytics to assess risk and tailor insurance products to individual needs. This not only made underwriting processes more efficient, it also allowed for more reasonably priced policies. As a result, InsurTechs managed to rake in substantial investment—approximately $43 billion between 2016 and 2022.
For these InsurTechs, devising unique offerings became a signature growth strategy. While many touted their use of AI, machine learning, and big data to automate underwriting and expedite claims processes, others placed greater emphasis on fine-tuning digital channels to personalize and streamline customers’ multichannel experience. Some based their business models around offering customized products relevant to specific niche markets. There were also those who offered innovative pricing models like pay-as-you-go and usage-based insurance as a way to make insurance more widely accessible and affordable.
It didn’t take long before several InsurTechs were providing eerily similar “unique” insurance offerings—a telltale sign of market saturation. Those who had used differentiation as a tactic to steal market share away from traditional insurance carriers suddenly found it to be an insufficient means of growth.
Many started to pivot their business models in two major ways, prompting a new and improved second wave of InsurTechs.
In addition to offering their tech- and data-driven products directly to policyholders, insurtechs either extended their offerings to insurance agents or began selling them to the traditional insurers who had initially been their competitors.
The benefit of operating with lower overhead costs meant InsurTechs could leverage partnerships with traditional insurance providers to expand their audience and offer more comprehensive insurance products with competitive prices—a strategy that opened up untapped revenue streams.
The Best of Both Worlds
The rise of InsurTechs was the industry overhaul insurance-seeking customers and policyholders were seeking. But after the initial wave, product redundancy ultimately forced emerging players to rethink their strategies and reconfigure their “unique” offerings to better serve consumers.
Despite the precedent for DTC strategies, InsurTechs are increasingly recognizing the value of working together with agents and insurers, leveraging their wealth of industry knowledge, networks and considerable resources to better serve customers.
The decision to pivot the InsurTech business model paved the way for an even more customer-centric approach to insurance that combines the best of both worlds: the pioneering technology of InsurTechs and the tried-and-true expertise of traditional insurers.