4 Things to Know About Insurtech Companies

Insurtech companies are the newest solution for drivers seeking an innovative alternative to traditional insurance.

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Traditional insurance carriers have a significant hold over the multi-billion-dollar insurance industry. But insurtech companies, described by the National Association of Insurance Commissioners (NAIC) as those using "technology-enabled innovations in insurance," are setting out to design more customer-friendly shopping experiences for car owners, while also potentially cutting down on auto coverage costs.

As an alternative and supplement to traditional coverage options, insurtech companies are hoping to disrupt an established industry and change how drivers shop for and use auto insurance. There are several reasons insurtech companies could be viable modern alternatives to traditional auto insurance companies.

Insurtech Is the New Way Insurance Is Doing Business

Insurtech companies use data to create a hyper-personalized experience for their clients. Using the data customers allow them to access, insurtech companies can simplify the digital insurance shopping experience for car owners. Insurtech companies are working to create personalized insurance engines, which use data to streamline the online insurance shopping experience so customers can quickly align with the policy that best suits their needs. This digital approach is designed to improve the customer experience while also cutting down on operational costs.

These reduced operating costs do not guarantee a lower price for consumers, however, it may provide an opportunity for these companies to pass the savings on to drivers. Lower overhead costs can also help keep their pricing competitive, which is why many of the least expensive rates are currently offered by smaller companies rather than large providers.

Insurance Carriers Are Investing in Insurtech Companies

The role of technology in the insurance industry is growing, leading many traditional carriers to choose the innovation presented by digital competitors.

According to a 2022 study by Deloitte, a financial services company, insurance carriers invested more money in insurtech during the first three quarters of 2021 than in all of 2019 and 2020 combined. On a global scale, approximately one-third of insurtech companies have secured funding or partnerships with an existing insurance carrier. Investments in these companies have steadily increased over the years, going from $1 billion in 2004 to $14.6 billion in 2021.

Insurtechs Are Now Offering Their Own Insurance

For those interested in exploring alternatives to the traditional insurance experience, insurtech could offer fresh options. Insurtech companies must acquire a license to sell insurance just as traditional carriers do. This means there are more provider choices than just the major carriers who currently own more than 52% of the property and casualty insurance market, according to the NAIC.

McKinsey, a financial consulting company, shared in their 2022 Global Insurance Report that more than 40% of insurtech companies focus on connecting directly with the consumer, and 8% are focused on the auto market. Insurtech company Lemonade claims it's as an alternative that offers "instant everything," lower prices, and an emphasis on social impact. The online carrier says it uses new technology to eliminate traditional roadblocks and that 96% of their claims are paid through their artificial intelligence claims bot it calls Jim.

Some companies are focused on single types of insurance. For example, Root Insurance says it is attempting to simplify auto insurance by providing a straightforward experience. Some of these insurtech companies are not available in every state, but others are making waves nationwide.

Car Manufacturers Are Also Disrupting the Insurance Industry

Small startups aren't the only ones breaking into the insurance industry. Auto manufacturers such as General Motors, Ford, Porsche, and Tesla are now offering insurance made specifically for their vehicles. Car owners can now get insurance directly from the manufacturer that understands the ins and outs of their vehicle.

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Elliot Rieth
Elliot Rieth is a writer who was born and raised in Michigan, the center of the American automotive industry. With a background in the industry that spans from sales to digital marketing, Elliot has years of experience working directly with dealers and OEMs to create digital content and educate potential customers. When Elliot isn’t writing about horsepower or EVs, he can be found with his two greyhounds enjoying a new book or record.