InsurTech 2021: customer experience remains a key battleground

Most of the hype about financial services focuses on banking and wealth. Look millennials – pink debit cards! Free trades! Insurance, meanwhile, has struggled to shake off the 'grudge purchase' tag.

In June 2018 we looked at the insurtechs trying to change that by launching propositions they hoped would disrupt the market. Our research highlighted key trends including the emergence of just-in-time cover and dynamic pricing. And we published an InsurTech Matrix – a snapshot of the brands we'd looked at, comparing their USPs and features.

A fresh look

Our latest update to the InsurTech Matrix reveals what's changed since then, and shows what we can expect to bubble up in 2021.

It again focuses on startups targeting retail and commercial customers, both direct and brokered. We added twenty new players, and to see how the class of 2018 are faring we checked whether they're attracting both investors (growth in funding) and customers (website traction).

Here's what we noticed along the way:

• Customer experience remains a key battleground
• Being niche pays off
• More moves into protection & prevention
• Boom time for cyber risk insurance?
• Successful startups seek control of the value chain
• Regulation and licensing continue to frustrate encroachers
• Covid-enforced digitisation may finally spell change for brokers

Customer experience remains a key battleground

Expectations about service, delivery, intelligence and simplicity are being set by Facebook, Amazon et al (FAAMG, if you will). That's been clear from our customer research for some time, and our 2018 review starkly illustrated how much closer to that bar insurtechs were than incumbents, who would need to come good or gift market share.

This is hardly surprising to those of us working in user experience. But while customer-centricity is easy to say it can be hard to enact, especially in larger orgs. And our latest research shows how the bar continues to rise: as the market matures, the insurtechs attracting investment and gaining traction (for example Metromile, Dinghy and yes Lemonade) are those that are enhancing their customer service, providing the best user experience and increasing personalisation.

Being niche pays off

"The essence of strategy is choosing what not to do" according to the venerable Michael Porter. This gives another theoretical advantage to lean startups. But actually deciding where to play remains the real challenge.

In 2018, we noticed insurtechs taking a systematic approach to that problem – launching price comparison websites and community platforms designed to reveal unmet needs and gaps in insurance products. While this might seem a long and winding road it seems to pay off. For example, Bought by Many have since narrowed in on pet insurance, winning both market share and awards in the process.

In the latest matrix update we see more startups subscribing to the do one thing well maxim, finding opportunities to innovate in the niche requirements of emerging ‘lifestyle’ or behavioural segments.

• ByMiles car insurance: pay an amount whilst parked, and another by the miles driven
• Surround Insurance: millennial commuter in the ‘shared’ economy (bike, walk, drive, rent and freelance)
• Dinghy: on-demand Gig worker insurance
• Vouch: business insurance specifically targeted at startups

More moves into protection & prevention

In 2018 we noted some insurtechs looking to transform underwriting and risk modelling using real-time data. In theory, innovation here should be great for both shareholders and customers. Cost reduction is a key appeal and we expect to see more activity here as firms navigate the post-pandemic downturn.

The other obvious beneficiaries of more accurate risk modelling will be the customers with less risk who enjoy lower premiums. But the more interesting and significant effect of innovation here can be seen in products and propositions.

Hippo (More Than Home Insurance: Home Wellness) are a great example of the shift from compensation to protection & prevention more commonly seen in health insurers' forays into wellbeing. Their pre-pandemic acquisition of Shltr is a sign that they're doubling down on this strategy.

An interesting trend here is the adoption of geospatial analytics (using satellite photos, GPS, and other tech) to both evaluate underwriting risk and assess claims. Similar to usage-based insurance, geospatial analytics can be used to assess damage during catastrophe events and provide outreach (which also keeps costs down).

Boom time for cyber risk insurance?

Remote working has increased the importance of cyber security, with more business activity online meaning more opportunity for hacks. As cyber losses grow, either a regulatory push or catastrophic event will force businesses large and small to invest in more cyber risk coverage.

Cyber security may prove fertile ground for protection and prevention products as the entire service can be delivered digitally. Analytics services such as Cyence (now part of Guidewire) and CyberCube will be able to hold or grow market share across multiple offerings.

Successful startups seek control of the value chain

Full-stack insurtech startups are having success in both directions, with some being bought and others building the clout to make acquisitions of their own.

As you'd expect, the biggest insurers are buying full-stack insurtechs to get access to modern distribution, improved front-end technology and user experiences, and efficient operational setups. Prudential’s $2.35B acquisition of Assurance in the US and Direct Line’s purchase of Brolly in the UK suggests that, if the investment environment tightens, larger companies will scoop up smaller insurtechs to quickly ‘update’ their offering.

But successful insurtech startups are now also competing with incumbents by obtaining insurance licences to have more control over product and operations.

Some are even purchasing legacy insurers: Hippo acquired Spinnaker Insurance Company as well as home protection platform Sheltr (also new data source trend). Bestow, Hippo, and Pie Insurance are joining a small cohort of licensed startup insurers including Lemonade, Metromile, and Root in the US, as well as Next Insurance, Kin and Clearcover. We’ll be watching other highly-funded startups on our list, like Ladder, Ethos, and Vouch Insurance to see if they follow.

Regulation and licensing continue to frustrate encroachers

In 2018, we noticed that Fintech banks like N26, Revolut and Monzo were providing (limited) insurance products and we thought they were well placed to develop this business. Their delivery of a seamless banking experience, their focus on the mobile-first millennial customer, and their ability to deliver to high customer expectations made them seem a threat.

However, the Fintech banks have mostly stayed in their lane, limiting themselves to contents or travel insurance as a feature of their premium current accounts.

As startup insurtechs are finding, regulation and licensing (or control of the product when working with licensed insurers) makes entering the arena a slow, difficult and expensive business.

Covid-enforced digitisation may finally spell change for brokers

In 2018 brokers and underwriters seemed most at risk of disruption. Brokers have a unique customer-facing relationship, which in itself is a sticky proposition. As with intermediaries providing other types of financial advice, the face-to-face relationship that both parties rely on has slowed adoption of technology and digital user experience. But during the pandemic even the most traditional brokers have needed to embrace digital communications. The worry is that their clients will become more digitally-savvy and open to ideas. Zoom may be a stepping stone to self-serve.

To flourish in the new world, brokers and underwriters will need to automate and streamline processes using digital technology and machine learning tools while retaining the sense of personal service that sets them apart.

Using digital to enable better conversations is nothing new of course, but the pandemic might drive adoption of new technology. TowerIQ, Insly, Azur and Broker Buddha are among the pack of insutechs hoping to prosper as a result.

What did we miss?

Have a look at our updated Insurtech Matrix – and let us know what we’ve missed!

Data Sources: CB Insights, Similar Web, Crunchbase, AngelList