Fabric, BenRevo and many other life- and health-related insurtech startups are entering the insurance marketplace. I often have the pleasure of discussing ideas and proposed apps or platforms, and I can’t help but be impressed by their creativity and innovation. Their focus is on the consumer, and their aim is to make access to a suite of insurance products easier, faster and more customized to each customer.
The primary characteristic I like about so many of the insurtech entrepreneurs that I meet with is that many of them know very little about insurance. While it may sound counterintuitive, that is a good place to start, and offers a refreshing take on an industry that can be stuck in its ways.
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Insurtech entrepreneurs wake up in the morning thinking “yes” and not “no.” They don’t’ have years of risk adversity embedded in them with bright lines drawn between insurance products and underwriting departments.
With that said, many of the insurtech companies typically need to sell their products as a licensed broker, which means that they often have to contract with an insurer who can underwrite and cover their particular product. Even with creative platforms and easy to understand apps, insurtech companies have to find a way to work with an industry that is often entrenched in tradition.
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In light of a typical insurance company’s legacy systems and our 50 state insurance regulatory regime, how much change is really possible?
Almost every insurtech startup that I work with is surprised at how immovable many insurance companies seem to be. I hear stories from frustrated startups about presenting a new product or idea to an executive team at an insurance company that often ends with “well, that sounds interesting, but we just don’t (or can’t or won’t) do it that way.”
Um, that actually is the idea, to create a new product and a new way of doing something.
While the strategists in the insurance industry are smart to show great interest in the growth of insurtech, it seems that on the ground insurance companies are struggling with exactly where insurtech and so many new ideas might fit in to their traditional way of operating.
Legacy systems, like historical underwriting and claims guidelines, are there for very good reasons. (Photo: iStock)
In defense of the insurance industry, legacy systems, like historical underwriting and claims guidelines, are there for very good reasons. Underwriting data and years of helpful claims history makes understanding and pricing particular risks easier. It is how insurance companies develop their underwriting guidelines and set rates. Insurers often have strict requirements on what information they need in order to issue a policy.