8 lessons from successful insurtech innovators

Famous for being slow-moving, opaque, and weighted down by paperwork, the insurance industry is now speeding up, gaining transparency, and going paperless. This transformation is mostly being led by younger insurtech innovators who have embraced web, cloud, and mobile technologies, as well as big data, the internet of things, machine learning, and artificial intelligence. But established companies are also innovating and finding ways to leverage their brands, financial wherewithal, and decades of domain expertise.

Here are eight takeaways from successful insurtech innovators that can apply to almost any industry. These observations are based on a review of industry literature, company websites, customer stories, news sites, earnings calls, forums, and analyst reports. In addition to faster, smoother payments and a simple user interface (UI), themes include smart use of data, business models with fairness built in, and the fearless embrace of digitalization.

1. Nothing beats on-the-spot payment. Founded in 2013, Oscar Health initially drew attention because its mobile interface was friendly and unique. Someone shopping for health insurance could enter their age, income, and zip code into the app on their phone and receive a monthly quote. Oscar also offered perks, like a $400 a year monthly gym membership and a $100 Amazon gift card if you tracked your steps and met your annual goal. But the innovation that landed Oscar on Fast Company’s “most innovative” list for 2019 went deeper than UI or rewards. It was related to their backend infrastructure. In dramatic contrast to traditional insurance claims processes, Oscar’s customers could settle their bills in the doctor’s office through real-time claims decisions. This, in turn, led to more flexible pricing and more transparent cost estimates.

2. Swipe right for discounts. GoodRx takes the heartburn out of high-priced prescription meds with a simple promise: “Talk to a doctor online for as little as $19. We’ll send your prescription to any local pharmacy or right to your door.” The GoodRx app makes it easy to comparison shop for the best price, something that previously required time-consuming legwork. According to the company, GoodRX is the #1 most downloaded medical app on iTunes and the Google Play App Store. “We believe that there will be lasting changes to the way Americans find and receive healthcare after the pandemic,” Doug Hirsch, co-CEO and co-founder, said on a recent earnings call. “Millions of people have embraced telemedicine and home delivery. Millions more are turning to the internet to learn about their care and the choices available to them.”

3. Fairness can be a powerful differentiator. Root insurance made headlines last year when it vowed to eliminate credit scores from its car insurance pricing model as part of an effort to fight systemic bias. Founded in 2015, Root broke ground by offering premiums based on driving behavior. “By collecting and synthesizing massive amounts of rich sensory behavioral data across thousands of driving variables including identifying distracted driving which is one of the biggest causes of car accidents today, we price based on actual causality rather than just correlation,” Alex Timm, CEO and co-founder, explained recently. “The data we collect identifies the worst 10% to 15% of drivers on the road. We call it like it is, and we don’t sell to those drivers. This factor alone separates Root from any competitor.”

4. Human interaction can be overrated. A large global insurer who routinely topped industry ranks in terms of its net promoter scores transformed its claims process with a combination of drones and virtual assistants. Customers were given a choice of switching from a bot to a person, but less than one out of three sought out human interaction. According to the Oliver Wyman consultancy, a virtual agent handled 1 million conversations with more than 500,000 members per month.

5. More accurate data can lead to more equitable pricing. When Metromile launched its pay-per-mile car insurance business model in 2013, it was common for car insurance companies to ask their customers to take odometer readings. The price of a policy would be based, in part, on these attestations. Drivers who drove less ended up subsidizing drivers who drove more. Metromile changed that. It offered customers an alternative in the form of a telematics device that plugged into their cars’ diagnostic system and relayed the data to a mobile app. Metromile not only tracked how much customers drove, it also offered personalized insights, letting people know how much they’d save in gas and time if they started their commute earlier or drove a different route. In September, Ford agreed to offer Metromile insurance with new connected cars.

6. A need-based approach resonates with small businesses. The risks faced by small businesses can appear out of the blue. A freak injury at work incapacitates an employee. A contaminated produce delivery sickens diners. A global pandemic forces a restaurant or small shop to close its doors. Having the right insurance is generally a smart move but a dizzying array of options leaves most small businesses paralyzed. According to a 2017 survey, only 28% had a business owner’s policy and fewer carried additional policies like business interruption (6%) and worker’s compensation (17%). Enter Next Insurance, which uses machine learning to offer custom policies that are targeted to the unique needs of more than 1,000 kinds of businesses. Next Insurance’s momentum accelerated this year with a new partnership with Amazon Business Prime and recognition by The Balance as one of “The Best Workers’ Compensation Insurance Companies of 2021.”

7. Leveraging network effects can lower distribution costs. After claims, distribution can be an insurance company’s highest expense. As other observers have noted, a gap often exists between the activity that triggers the need for insurance — the purchase of an expensive item or the launch of a business — and obtaining insurance to lessen the impact of bad things happening. Uber’s approach here is instructive. The ride-sharing giant solves the challenge of insuring drivers in markets around the globe by connecting insurers with its drivers. The beauty of Uber’s solution is that it is a win-win that can lower risks and costs for every player in the ecosystem.

8. A wearable and a Trojan horse. The economic cost of a sedentary lifestyle may be as high as $67.5 billion a year, a reflection of health problems ranging from coronary disease to colon cancer, diabetes, and breast cancer. But how can an insurance company get the average inactive person to walk for 30 minutes per day? Companies like Aetna and UnitedHealthcare are seeking to battle our natural inertia by appealing to our inner gadget lover. The insurance giants are dangling the prospect of a free Apple Watch in response to behavioral changes. Customers who download an app that tracks their activities can receive rewards points once certain goals are met. These points can be redeemed as payment toward the watch or for gift cards. But even if customers remain sedentary, insurers can benefit by the data gathered by the watch, which can lead to more accurate risk profiles.

The new approach to insurance taken by these companies are exciting, and there are more changes on the horizon, and no doubt more lessons to be learned. One new technology that has not yet been widely adopted by the insurance industry is modern card issuing. Stay tuned for more blog posts to see how modern card issuing can facilitate instant disbursements and other payment innovations.