Industry Insights: How insurtech is improving the way insurance is built, bought and experienced across the globe
In the digital age, it’s disrupt or be disrupted. The digital revolution has upended many industries, but insurance has remained largely resistant. But a paradigm shift is happening — in the past year, the sector saw the equivalent of several years of digital transformation catalyzed by COVID-19. And the pace is accelerating with technology and macro-shifts reshaping the entire ecosystem.
Ironically, despite protecting against risk, insurers are increasingly at risk as the world rapidly changes. Today, insurers face an existential challenge as traditional business models and value propositions are being dismantled. And as legacy players struggle to adapt, this creates a massive opportunity for new players across the value chain.
Known as insurtechs, emerging global players are improving the way insurance is built, bought and experienced and have raised $7.1B in venture capital funding in the first half of 2021 (according to CB Insights). They are also becoming billion (and multi-billion) dollar companies — think Lemonade (rental insurance), Root (auto), Hippo (home) or Sidecar Health — a Cathay portfolio company that passed the billion-dollar mark in January.
And this is happening globally. At Cathay Innovation, as a global venture capital firm investing across North America, Europe, Asia and beyond — we’ve seen first-hand the transformation materialize in developed and emerging markets. Here’s how we’re seeing insurtechs push forward change that’s enabling legacy insurers to enter the digital age while fostering more inclusive, accessible insurance for underserved populations worldwide.
Traditional Insurers: The need to shift from followers to innovators
Today, customers demand greater flexibility, better services, transparency and customized insurance. Yet, when it comes to product innovation, incumbents have a reputation of being inherently risk-averse. Cumbersome regulatory oversight, legacy infrastructure, business unit silos, long-entrenched processes and culture make it difficult to bring new products to market.
Traditional insurance product development focused on protecting against major catastrophic events that are unexpected and infrequent. While risk-based products may have been rational, it’s ineffective given the lack of understanding customers’ ever-changing needs. And while insurers sit on a wealth of data, few adopt data-driven approaches. Instead, most rely on competitive intelligence and existing market trends, making them followers rather than innovators.
New product development also suffers from long lead times, resulting in slow speed-to-market. On average, cycles tend to range from 12 to 18 months, with another three to six to modify existing coverage depending on type and region. Ineffective product innovation coupled with the inability to quickly launch products has resulted in several issues, including under penetration and vast dissatisfaction with the current crop of one-size-fits-all insurance.
Insurtechs & incumbent players: Leveraging technology to reinvent & unlock the value chain
Insurers have struggled to achieve productivity gains for years, leaving much potential trapped within the value chain. By “leapfrogging” with the latest, innovative technologies, insurtechs aid legacy players in acquiring customers, optimizing existing systems, streamlining processes, managing risk and uncovering new opportunities — reinventing the value chain and unlocking hidden opportunities.
The insurers that will succeed are those that are quick enough to reinvent themselves and use a deeper customer understanding to bring the right products to market at the right time through multiple distribution channels. Here’s some of the top insurtech trends we’re seeing that are helping traditional players digitize and better meet customer needs:
I. Digital platforms to boost innovative insurance product pipelines
As insurers need to pre-test product-market fit (PMF), having an efficient pipeline can provide an experimentation sandbox for new ideas. Insurtechs, who typically take an agile and customer-centric product-led approach, help by rapidly developing and piloting new products to learn what sticks and what doesn’t, and refine based on customer feedback.
A leader in this space is Coherent, a Cathay portfolio company based in Hong-Kong helping insurers evolve their business models and reshape products without overhauling existing IT infrastructures. Its digital platform enables incumbents to develop and launch competitive products at record speeds, breaking through the constraints of legacy systems to radically improve efficiency and productivity.
For example, the company recently partnered with the Philippines’ UBX and Chubb, the world’s largest publicly traded property and casualty insurer, to launch Assured. The new embedded insurance platform digitizes the experience, offering multiple products from various carriers across channels. With the Phillipines having the lowest penetration rate in Asia, this allows insurers to break into new markets while enabling the under-insured population to have greater and easier access to insurance.
II. Infrastructure & tech-stack enablement to satisfy digitally-savvy consumers
Digitally-savvy consumers expect personalized round-the-clock service, comprehensive coverage and competitive pricing. To meet these needs, traditional insurers should leverage artificial intelligence, consumer data and analytics to adjust and iterate on products, pricing and risk assessment. Yet, few insurers can build these capabilities quickly enough.
One of the most advanced players that fill this gap is Cathay-backed Igloo in Southeast Asia. Igloo provides a full-stack digital infrastructure, an API to integrate insurance products with partner platforms and a machine learning-powered, real-time risk engine that enables dynamic pricing. Bringing state-of-the-art technology, Igloo’s cloud-based solution can be easily scaled to meet market demands, which is crucial for large digital players that have massive transaction volumes with customers demanding split-second claims.
In addition, clean, slick and simple interfaces are no longer nice-to-haves but are imperative for the user experience. Another insurtech in our portfolio is Spain’s Coverfy, revolutionizing the way people manage and track all insurance in a single location via a centralized mobile app. In addition, users can optimize and improve coverage at no cost as the app analyzes overlapping policies.
III. Digital marketplaces that bring insurance distribution online & omnichannel
The traditional insurance sales process, relying heavily on face-to-face meetings, had to make a dramatic shift towards digitalization in the wake of COVID-19. Omnichannel distribution and D2C marketplaces are now key — offering a frictionless purchasing process that is simple, convenient and transparent. This also evolves the role of agents, with digital enablers allowing them to better understand customer financial needs and provide personalized solutions.
In Indonesia, Cathay-backed Lifepal has become the number one insurance marketplace in less than two years. They’ve done this by amassing a large customer base through marketing and education, making it easy for customers to compare coverage, terms, and costs across providers and enabling agents with digital tools to boost productivity.
Meanwhile in China, healthcare is one of the fastest growing insurance sectors driven by an aging population, unbalanced medical expenses and higher awareness. Cathay’s Yuanbao is one of the top players in this segment, having an online insurance distribution platform powered by big data analytics that allows them to match people with the most suitable policies while bringing customers to insurers at a large scale.
Insurtechs as new players: How diversified products fuel inclusion and growth worldwide
Insurtechs are also exploring areas where incumbents have less incentives. They cut through complexity with new products that are easy to understand, compare, purchase and claim. Product innovation and diversification creates value in sectors previously overlooked and untapped. It’s vital in enabling greater penetration in developing economies, where traditional products are often too expensive and not tailored to local demographics — and is key to driving insurance growth around the globe.
Here are some of the top insurtech trends we’ve seen emerge that are pushing forward innovation, inclusion and the larger growth of the industry.
I. Tapping into emerging markets with micro-insurance
A growing number of insurers are tapping into emerging markets with micro-insurance, or simple and affordable versions of traditional niche policies that are more understandable and accessible. With high volumes, low costs and efficient administration, micro-insurance extends protection to a much wider market.
In mature markets, growth is primarily derived from tailored products and better policies for existing demographics. A prime example is Cathay’s Sidecar Health. The US healthcare system is one of the most broken and expensive. Sidecar Health is solving pertinent issues by empowering consumers with choice, visibility and savings. It does this by offering individuals and micro-businesses the ability to pay for care directly, instead of through a traditional insurance policy. Customers can view prices of drugs, providing optionality and price transparency.
Amidst muted sales, bite-sized insurance is also gaining traction in developed markets. Much like how fast moving consumer goods (FMCG) drives growth with sachet-size products, low coverage and premiums can get more people to purchase insurance policies. And by creating personalized offerings, insurers can extend product portfolios to increase the number of customer interactions and broaden their appeal.
II. Distributing policies at the right place, right time with embedded insurance
For decades, insurance was sold, not bought. But embedded insurance is shifting this concept by enabling it to be purchased as a native feature of another product.
Embedded insurance works by bundling coverage with the sale of a product, service or within a platform, allowing distribution to happen in real-time or at the point of sale (POS). It provides a frictionless customer experience by serving them with more affordable, relevant and personalized insurance when and where they need it. It also lowers the cost of distribution for insurers and provides organizations with new revenue streams. For more on the embedded revolution, see our post From startups to Starbucks: the embedded API opportunity.
From our portfolio, Belgium-based Qover is a leading API-first global insurtech that provides plug and play solutions for partners to launch, embed and offer almost any insurance product across borders quickly and reliably.
III. Flexible, personalized policies with Insurance-as-a-Service (IaaS)
Qover is also a pioneer of Insurance-as-a-Service (IaaS), a 100% digital insurance offering delivering simplified and personalized products. With its first-ever B2B2C “Sliced On-Demand Coverage,” Qover allows consumer-facing businesses to increase revenue with complementary insurance solutions at the POS.
Customers receive a price in real-time and can immediately purchase an insurance contract that is instantly issued. This cuts conventional products into a more targeted by-product and varies the duration of coverage based on needs. The flexibility of this data-driven solution enables a dynamic operating model that provides real-time risk assessment and insurance coverage delivered through on-demand or usage-based insurance. This is important to meet the needs of customers who are disincentivized from paying for an inflexible annual policy and want products that can be activated or deactivated as needed.
IV. Fueling Business Resilience with Parametric Insurance
Parametric insurance covers the probability of a predefined event happening (such as natural disasters), differing from traditional products that indemnify for an actual loss sustained. While the concept of parametric insurance is not new, it is increasingly made more accurate and viable as it provides faster and more flexible funding for losses of risks that are difficult to insure.
One of the strongest players in this space is Cathay-backed Descartes Underwriting. Descartes creates, prices and sells disruptive B2B bespoke parametric insurance solutions that are fully transparent and much more affordable with swift claims payments. They leverage machine learning, real-time monitoring from satellite imagery and IoT to help businesses bounce back faster against natural catastrophes, climate change and emerging risks.
Parting thoughts: Investing in the transformation of the global insurance industry
Over the last six years, Cathay has backed and scaled leading insurtechs around the world and across the value chain. Our global presence allows us to use “time machine thinking” and knowledge sharing to identify trends, foresee opportunities and invest in the emerging players that we believe will make a sustainable impact on society.
Counting dozens of the world’s leading Fortune500 companies as LPs and active partners in our funds, we’re committed to not only fueling startup growth, but helping our corporate partners innovate. This includes supporting those navigating the evolution of the insurance industry in developed regions and emerging markets.
Insurance — one of our oldest industries that dates back centuries — is a critical component to the global economy and the day-to-day protection of individuals and businesses around the globe. We’re proud to take an active role in the transformation of this fundamental industry and will continue to invest in innovative insurtechs making insurance more digital, accessible and inclusive everywhere.