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In the internet era, giants of the digital age like Google, Apple, Facebook, and Amazon (GAFA) in Western markets and Chinese powerhouses like Baidu, Alibaba, Tencent, and Xiaomi (BATX) in Eastern markets have been increasingly straying away from their bread-and-butter products and testing the waters in large, established industries like banking. GAFA and BATX are beginning to offer services like online and mobile payments, money transfers, personal lending, account and savings management, peer-to-peer lending (crowdfunding), and currency trading.
And it’s not only the tech giants that are moving in. Countless startups in financial services have also been flooding the space and gobbling up market share, cherry picking high-volume services tailor-made for the online and mobile world into which they were born. Though large banks recovered from the global financial crisis of the early 2000s to continue to serve customers, they quickly started to lose ground as those customers turned to faster, more cutting-edge solutions to meet their financial needs.
Unlike the banking industry, GAFA and BATX have not made direct forays into insurance, though the number of Iinsurtech startups in this space is on the rise. The market is ripe, as younger generations are used to ease of mobile apps and one-click shopping, and they want the same with insurance; they are not interested in the heavy process and expense associated with traditional insurance.
As in banking, peer-to-peer is hot in insurance with older players like Friendsurance and also newcomers such as Lemonade, InsPeer, InSured, and Teambrella. Each promises insurance that is more transparent and social with shared costs – things that have wide appeal in today’s market where customization is king.
Another interesting area in insurtech is item-specific, event-specific, and on-demand coverage – “smart insurance.” Startups in this space collect data about a customer’s possessions and provide machine-learning enhanced risk pricing for single-item coverage of any duration. This model allows premium levels to scale down to pennies with durations down to the second for completely customized coverage.
Aside from insurtech startups, the Internet of Things (IoT) is also poised to change the insurance industry in the coming months. Though IoT has been around since the 1970s, it has only recently started to infiltrate all aspects of consumers’ lives. Billions of sensors, computer processors, and communication devices are being embedded in or attached to every kind of ordinary thing imaginable, from watches to agriculture crops to cars.
And we’ve just begun to scratch the surface; Gartner estimates that by 2020, there will be more than 21 billion connected devices. Considering there were only around 3.5 billion smartphones in the world in 2015, this is astronomical growth.
Currently, the manufacturing, healthcare, retail, and security industries lead in the IoT sector, but insurance companies are well positioned to take advantage of this space. Given the upcoming ubiquity of smart homes and cars (like Nest and any number of the developing self-driving cars), a new generation of products based on real-time monitoring, collection, and analysis of data coming out of these products is on the horizon.