The rise of insurtech in the age of algorithms

By  for Dataconomy

In the internet era, giants of the digital age like Google, Apple, Facebook, and Amazon (GAFA) in Western markets and Chinese powerhouses like Baidu, Alibaba, Tencent, and Xiaomi (BATX) in Eastern markets have been increasingly straying away from their bread-and-butter products and testing the waters in large, established industries like banking. GAFA and BATX are beginning to offer services like online and mobile payments, money transfers, personal lending, account and savings management, peer-to-peer lending (crowdfunding), and currency trading.

And it’s not only the tech giants that are moving in. Countless startups in financial services have also been flooding the space and gobbling up market share, cherry picking high-volume services tailor-made for the online and mobile world into which they were born. Though large banks recovered from the global financial crisis of the early 2000s to continue to serve customers, they quickly started to lose ground as those customers turned to faster, more cutting-edge solutions to meet their financial needs.


Unlike the banking industry, GAFA and BATX have not made direct forays into insurance, though the number of Iinsurtech startups in this space is on the rise. The market is ripe, as younger generations are used to ease of mobile apps and one-click shopping, and they want the same with insurance; they are not interested in the heavy process and expense associated with traditional insurance.

As in banking, peer-to-peer is hot in insurance with older players like Friendsurance and also newcomers such as Lemonade, InsPeer, InSured, and Teambrella. Each promises insurance that is more transparent and social with shared costs – things that have wide appeal in today’s market where customization is king.

Another interesting area in insurtech is item-specific, event-specific, and on-demand coverage – “smart insurance.” Startups in this space collect data about a customer’s possessions and provide machine-learning enhanced risk pricing for single-item coverage of any duration. This model allows premium levels to scale down to pennies with durations down to the second for completely customized coverage.


Aside from insurtech startups, the Internet of Things (IoT) is also poised to change the insurance industry in the coming months. Though IoT has been around since the 1970s, it has only recently started to infiltrate all aspects of consumers’ lives. Billions of sensors, computer processors, and communication devices are being embedded in or attached to every kind of ordinary thing imaginable, from watches to agriculture crops to cars.

And we’ve just begun to scratch the surface; Gartner estimates that by 2020, there will be more than 21 billion connected devices. Considering there were only around 3.5 billion smartphones in the world in 2015, this is astronomical growth.

Currently, the manufacturing, healthcare, retail, and security industries lead in the IoT sector, but insurance companies are well positioned to take advantage of this space. Given the upcoming ubiquity of smart homes and cars (like Nest and any number of the developing self-driving cars), a new generation of products based on real-time monitoring, collection, and analysis of data coming out of these products is on the horizon.


To stay relevant in the age of IoT, some insurance companies are partnering with insurtech startups, particularly for devices in the smart home business. While GAFA is investing heavily in IoT, thus far, they have largely decided not entered the insurance market directly, leaving this space for traditional insurers to step in (for now).

And the most savvy insurance companies are beginning to step up and realize the potential of IoT. For example, insurance companies have partnered directly with device manufacturers like Water Hero, which monitors and displays water flow in real time and offers a robust alert system and remote shut-off capabilities. It’s easy to see the appeal in this partnership given that roughly one-third of all household claims are related to water leaks.

The most popular items in smart homes right now deal primarily with security and access (from light control switches and dimmers to remote security and smart doorbells), with obvious appeal to insurers. But other startups like Water Hero are creating more specific IoT devices that will certainly help prevent costly claims, particularly smart smoke and carbon monoxide detectors and mold detection. All of these devices open up the door for insurance in the time of IoT.


Of course, even when insurance companies partner with IoT manufacturers, the question still remains: who owns the customer relationship? For complete control of the customer experience and customer proximity, it’s essential that today’s insurance companies embrace the age of algorithms and better leverage IoT technology and big data to drive innovation.

Insurance can’t continue to simply partner with IoT manufacturers for long – they have to lead the movement. This means appropriating the very tools giving their new competitors an advantage in both IoT and non-IoT spheres: big data and algorithms. By leveraging IoT technology to gather more data about customers’ homes, cars, and even the people themselves, insurance companies can then better use real-time data, predictive modeling, and machine learning to create new business models and new offerings for clients.

For example, by becoming more connected to customers’ data, not only will business improve vis-a-vis claims reduction (think of the Water Hero use case and potential disasters averted with IoT), but it’s also easy to see how overall customer experience will also be significantly improved.

Customers, of course, will similarly benefit from avoiding the hassle of a claim and repairs, but on top of that, IoT can create a better experience in case there is an accident. Think of a smart car that is involved in a crash – with real-time data, the process of knowing exactly what happened and who was responsible for the crash becomes infinitely easier, more concrete, and more transparent..

Additionally, innovative developments in insurance will expand providers’ value proposition with customers. Using data and predictive data science will give more flexibility to offer customers only services and coverage that they will use. Clearly, people are looking for this offering given the number of startups in this space. But with IoT, traditional insurance companies can also compete in the space.


Current startups in the space are proving that the age of algorithms is a positive development for the insurance business itself and for its customers, who are looking for more options, flexibility, and transparency, all of which IoT and big data analysis can offer.

IoT is moving forward at an astounding pace, and developments in IoT deeply entwined with and affecting insurance will continue whether insurance companies choose to get involved or not. So leveraging and investing in big data in insurance seems like an obvious win – what are you waiting for?

First appeared at Dataconomy