The Insurance Industry is Overdue for Some Disruptive Innovation
The insurance industry is undeniably a valuable industry not only for consumers, but also for businesses. In every industry, whether it’s medical, automotive, life, residential, or commercial, insurance mitigates all kinds of risks for all kinds of people. As all-encompassing as the insurance industry may sound, it’s also very outdated.
Part of the problem may be that the 46 insurance companies in the Fortune 500 have an average age of approximately 95 years, and it shows. Fortunately, with companies like Oscar and SF startup Clover Health, we are starting to see the insurance industry prepare for change as it gets ready for some much needed disruption.
Pioneers in the insurance industry recognize that insurance ranks among the last in terms of customer satisfaction across all industries. Insurance has also developed a bad reputation due to lack of price transparency, customer protection, and online accessibility. At a time where other industries have revolutionized their business models and their general modus operandi, insurance has not. With consumer expectations changing, they have no other choice but to change, and quickly. And we have already started to witness certain advances.
Companies with venture arms like Axa, Assurant, Munich Re, and AmFam have begun to voice their need for innovation instead of sitting quietly on the sidelines. Startups like Oscar and SF startup Clover Health are giving consumers a fresh take on the industry, instead of focusing on delivering software tools and analytics that only enhance the established business model.
Venture money is starting to invest in the insurance industry as well. In just the first half of 2015, $800M in funding was raised, whereas in the past 5 years VC funding had only amounted to a mere $2B. We have fallen so behind in innovating the industry, that we actually have an “innovation gap” between the U.S. and most other developed countries. Lee Hower of NextView ventures pointed out that in most developed countries, 40–50% of insurance is bought or managed over the internet. In the U.S., less than 5% is bought or managed online.
The reality is that the venture world is always on the hunt for the next big thing worth investing in, and insurance currently houses a huge opportunity for innovation. Moreover, the insurance industry brings in more than $1.3T in premiums in the US alone. That tops online travel ($160B), household work ($460B), and food delivery ($600B). But as with every other business decision, disruption and innovation is about timing. Luckily thanks to emerging disruption in other industries and sectors such as shared economies, fractional ownership, insurmountable and accessible data, evolving regulatory climates, and lifestyles heavily influenced by social media, the insurance industry can’t help but get swept up in the disruptive wave.