Insurance-as-a-service: an introduction

Digital Core. Image taken from Corezoid

Banking-as-a-service is making a strong case — it is time for insurance industry to follow. Here, I give you highlights of Insurance-as-a-Service.

The article will be constantly updated as I receive feedback and identify new startups in the Insurance-as-a-Service space.

This short introduction deals with the following questions:

  • Why is the Insurance-as-a-service model attractive?
  • What types of Insurance-as-a-service model do startups develop?
  • How to accelerate the development of these ventures?
  • How could Insurance-as-a-service model develop in the future?

I define Insurance-as-a-service space as startups enabling other companies to use selected pre-built elements of the insurance value chain on a subscription basis, essentially powering insurance operations for others. This excludes startups who are acting as insurers themselves since insurance is by definition a financial service no matter what billing model is used.

Why is the Insurance-as-a-service model attractive?

First of all, in the past years, similar model showed good traction in fintech the banking space. Life.SREDA report gives a good idea of it. This path inspired me to look at how the model develops in the insurance sector, given that is follows many patterns of fintech and banking.

Second, as-a-Service model allows for easier trials of business cases from the incumbent point of view. They do not need to rebuild their core all at once for integration, a small-scale trial or even a sandbox test will be sufficient to convince them of using the model. Thus, incumbents, entrepreneurs, and investors should seriously consider Insurance-as-a-service.

Finally, there is a great opportunity to employ SaaS approach to streamline the process of developing ventures, allowing founders to adopt validated blueprints and focus more on the insurance-related part.

What types of Insurance-as-a-service model do startups develop?

Digital core elements

Startups specialised in a particular core process of insurance, e.g. underwriting, customer data management, fraud detection, or claims management. Examples include RiskPossible for underwriting, RightIndem for claims, GST Software for applications, and many more.

Because of specific know-how, digital nativeness and zero-legacy approach, such players can often execute core insurance processes with greater efficiency, making incumbents eager to engage with them. However, challenges arise when the words “customer data” and “cloud” are put together in one sentence since insurers are cautious about data exploitation.

A special engagement vehicle coveted by many startups are corporate sandboxes. There, startups would receive sets of depersonalised data to show proof of concepts. This may well become a trial phase from which IaaS startups should scale.

Full stack

Startups offering full digital insurance infrastructure to launch new insurers. They are B2B2x-oriented and usually offer several models of cooperation, from single products development to complete white-label backend with a license.

A prominent example in insurance is Element — building a modular digital technology architecture allowing their partners to choose an own path. Another European full-stack startup is OutShared.

[Update 30.01] Further use cases are demonstrated by Stonestep. Dubbing themselves microinsurance-as-a-service, the Swiss startup allows corporate partners like mobile carriers to roll out microinsurance products in low-income regions, powering all the processes along insurance value chain.

In banking, 10x lead by former Barclays exec Anthony Jenkins, employs a similar model and recently received a stunning early VC round.

Process digitisation

Startups helping companies rebuild and their processes in the digital environment. Like Corezoid, they allow customers to build digital processes and connect them into a single system powered by their engine.

Such companies do not carry any licenses and to a large extent can remain industry-agnostic. Having insurance-specific use case significantly improves their chances to launch with incumbents.

How to accelerate the development of these ventures?

The answer is simple: learn from Software-as-a-Service. This area has a very solid and battle-tested body of knowledge on building and scaling businesses.

Almost a year ago, product and strategy people from several fintechs (being either challenger banks or digital core service providers in banking) told me they are actively using many SaaS metrics and growth tricks for their business — and that is seemingly brings good results.

Incorporating this approach makes it easier for growth teams to use growth hacking tricks, for investors to assess a startup’s life indicators. Also, the modularisation approach that belongs to SaaS way of thinking makes such solutions more deployable it incumbents, helps find valid use cases and avoid developing unpopular features.

How could Insurance-as-a-service model develop in the future?

Digital core elements

At first, this type will prevail in the overall IaaS landscape. If PoCs with insurers are successful, I see the following scenarios unfold:

  1. Niche leaders might be acquired by large service providers (i.e. consultants) to strengthen their digital transformation portfolio
  2. Consolidation, several strong leaders will expand product portfolio to cover the whole digital core (a) serve insurers or (b) get a license and provide full stack solutions

Full stack

Having an own platform with a license will become a must. This creates a one-stop-shop, simpler experience for the B2B customers. Also, such approach opens the non-insurers market, like shared economy players, who would be able to offer their own on-demand products.

Process digitisation

Such startups will gain traction among incumbents who require support in digital transformation. Consulting companies may potentially replicate these capabilities and include them into their IT portfolio, so this type is under risk of quick commoditisation.

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If you have any comments, suggestions, counter-arguments, or interesting cases — please feel free to share them. Your contribution is greatly appreciated!

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