Professional Insight

Insurtech: Marrying the Promise to Reality

The digital era is transforming society, and the insurance industry is along for the ride.

Call it insurtech — technologies that change the way that insurance is priced, sold or administered.

Naturally, actuaries are interested in this combination of insurance and technology. About 60 turned out for a session at the CAS Spring Meeting in Toronto titled “An Introduction to Insurtech.” They heard an overview of the hot-growth topic and got an up-close look at how insurtech startups operate from two industry professionals.

CAS Fellow Adam Troyer, a managing director at Aon Benfield, gave an overview of the industry. Chad Nitschke — one-time insurance professional and now CEO of a startup known as Bunker — talked about the strategies and challenges that companies face in that space.

Insurtech, Troyer explained, is the cousin of fintech — the move to automate the more cumbersome processes that banks undertake. Interest in fintech grew in 2015. Silicon Valley’s gaze turned toward insurance a year later, though the banking sector continues to get far more attention and funding, since it is so much bigger than the insurance industry.

Call it insurtech — technologies that change the way that insurance is priced, sold or administered


Insurtech products take several forms, Troyer explained:

  • Peer-to-peer insurance. Companies help a group of individuals mutually share risk, rather than ceding risk to an insurance company. If claims are few, the group shares a dividend. An example is Friendsurance, a European company.
  • On-demand insurance. Companies let the insured toggle coverage on and off, usually via smartphone. The app Trov lets customers turn on coverage for, say, their camera when they leave for vacation then turn it off when they have returned home.
  • Online insurance marketplaces. These online services reproduce the workings of an agency or brokerage, providing quotes online or binding coverage. Coverhound is an example.
  • Telematics. Smartphone apps monitor insureds activities.
    Zendrive, for example, uses sensors on a smartphone to measure and improve driving behavior. The data can also help underwrite risks.
  • Internet of things. This is the catchall for everyday objects with computers that let their owners monitor them via smartphone. (Think of a system that lets you control your home temperature with an app.)

There are more than 500 insurtech startups, Troyer said, and their funding is $14 billion. About $3 billion of that is dedicated to businesses primarily focused on insurance. Those numbers are fairly small, he said, compared with, say the $78 billion that investors have poured into alternative capital arrangements like catastrophe bonds. “It’s still early” for Insurtech, he said, “but it’s certainly on a trajectory to have a big impact.”

About 60 percent of the funding focuses on distribution, such as marketplaces like Coverhound. Next in line are underwriting operations like Zendrive, followed by insurance operations like Trov. The smallest segment focuses on streamlining claims — eight companies with funding around $100 million.

These figures are a tiny bit of the $230 billion U.S. insurers are spending on those processes, but interest is high, as Troyer demonstrated by sharing a series of quotes from executives regarding the new automation. Typical was this from Travelers CEO Alan Schnitzer: “One of the things changing most significantly and maybe poised to have the biggest impact on us is the world becoming more digital and more mobile.”

Insurtech products have straightforward advantages: They can improve a product or the insurer’s efficiency, or they can improve the customer experience.

But there are challenges, too, Troyer says. Developers tend to lack insurance experience, so they underestimate how complex an insurance product can be. They also don’t fully fathom the challenge of having to satisfy 50 regulatory regimes.

Troyer says that developers also don’t understand that most potential customers are apathetic to insurance products, such as apps that let customers insure a product only while they are using it.  “I don’t know people who say before they go on a ski trip, ‘Hey, let’s get some insurance on my skis,’” says Troyer.

Still, interest is high, both among companies and developers. Thirty percent of the top 25 insurers have announced partnerships with startups.

For industry professionals who wanted to learn more, Troyer suggests:

  • Follow the landscape. This could be as simple as subscribing to a free newsletter like CB Insights.
  • Build your individual skill set, developing qualities that would be attractive to innovators.
  • Support innovation efforts at your company.

Or you could take the route that Chad Nitschke took. He took his 15 years of insurance experience and entered the innovators’ realm.

His company, Bunker, helps smooth out the bumpiness of business insurance transactions, commonly between an enterprise and their partners, vendors and independent contractors.

The idea for the company came from the answer to a question, Nitschke asked: “When a small business needs to buy insurance, what’s the catalyst for that?”

Usually, he says, a small business buys coverage because a business partner — like a landlord or client — requires it. So, the small business wants insurance solutions that are fast, easy and affordable.

Then Nitschke looked at what the client needs. Larger companies have to keep track of all of the small vendors they deal with, making sure that vendors have insurance — the right coverage with the right terms.

They get that information in haphazard ways — over the phone or via email — and they often keep track with an Excel spreadsheet. “That is a really painful process for both parties,” Nitschke said. His company’s product automates the process, then stands as a logical broker for any transaction.

Next, his company is trying to tailor policies more closely to the needs of a small business, starting with independent contractors in the “gig economy.”

Carriers are sometimes interested in partnering with insurtech innovators, he said, but there is a wide range of interest from carrier to carrier. Much depends on an insurer’s product mix and where the innovator can add value.

“I don’t think there’s a one-size-fits-all,” he said.