Investors Are Poised to Disrupt the Tech-Averse Insurance Industry…

Investors have set their sights on insurance tech. Ripe for disruption, this antiquated industry has a large and confusing domain known for its poor customer satisfaction and, in this age of swipes and clicks, limited technological innovation.

A much-needed leap into the 21st century could change this.

A serious shift in insurance is possible as investors examine the potential value of insurance tech, currently a weaker component of the industry. Since 2010, investors have funneled an estimated $2.12 billion toward this prospect. Of those funds, more than half rolled in during the last two years, with $556.5 million coming in 2014 and $831.5 million in 2015 — and we’re not even talking a full year here; that’s just from January to May. 

But investor interest is also coming from a broader economic shift taking place. Take the freelance industry, for instance: According to a 2015 survey, more than 53 million Americans reportedly freelance in some capacity. “Uberized” labor also continues to swell, with highly skilled services a click away. Priming that proverbial pump even further is the Affordable Care Act, which has essentially created a new marketplace. 

Demystify and capitalize.

With all of these changes, there’s an opportunity to innovate across several facets of the insurance industry.

Consider PolicyGenius, one of my firm’s portfolio companies. The startup is trying to improve the insurance experience for both the consumer and the insurer. By offering its patented “Insurance Checkup,” users can quickly and easily gather information on respective policies. As an aggregated system, its pricing options are available in one place, preventing users from bouncing from one site to the next.

As a full-fledged marketplace, PolicyGenius also offers a wide variety of potential insurers. Thus, insurers gain access to customers who wouldn’t likely be prospects without this platform. Further, the marketplace provides a personalized and direct approach to supply and demand.

In fact, the platform’s customer base is more diverse than you’d expect for a tech startup. While 50 percent of users are millennials (who are not only more open to adopting tech, but who are also projected to make up the largest generational segment in the U.S. this year), nearly 20 percent of the company’s users are Baby Boomers.

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If you’re able to demystify the insurance process — or even create a better insurance experience — you open yourself up to a huge audience, hungry for someone to make sense of it all.

Moving forward, entrepreneurs and venture capitalists alike should pay special attention to a few particular areas:

1. Tools for risk assessment.

As the industry moves toward insuring connected homes, vehicles and wearables, insurance companies need to rethink their processes for risk assessment and underwriting. A significant opportunity exists to create new data and risk mitigation tools.

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2. Improvements in efficiency and experience.

Believe it or not, the industry still largely relies on fax machines to transfer information. If it’s not done by fax, then it’s done by email. Like the industry itself, this communication is outdated. The next logical step is to move data management, billing, claims and communication to smartphones.

3. Mergers and acquisitions activities.

As traditional insurance companies become increasingly aware of the shift — while simultaneously losing ground — it’s likely you’ll see an increase in merger and acquisition activities. Large insurers will strategically gobble up insurance tech startups, which will drive more venture capital investments into the space.

Companies in other industries continue to drive changes in consumer behavior, whether that means paying for services, managing client money, investing in markets or simply deciding which products to purchase. Inevitably, this change in behavior will directly impact the insurance industry. There’s a clear opportunity for both entrepreneurs and VCs. All it takes is a willingness to take advantage of uncharted waters.

Take a risk and manage it accordingly. After all, that’s what insurance companies specialize in, isn’t it?

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