The Disruptive Effects of Fintech in the Insurance Industry

Insurance and FinTech have largely remained on opposite sides of the spectrum, until recently. Financial technology companies paid scant attention to the insurance industry, preferring to focus on peer to peer lending, Forex, and payments. That trend is changing. FinTech and insurance have merged to become known as Instech, or Insurtech. Many investors are now plowing funds into this industry, seeking to capitalize on untapped markets.

Entrepreneurs already see the opportunity inherent in the insurance industry – a multi-billion-dollar enterprise around the world. Insurance is attracting FinTech investors in their droves. According to CB Insights’ Mathew Wong, the FinTech industry continues to attract scores of entrepreneurs from various fields, and they see the benefit of tapping into the insurance sector. Consider that in 2014, Instech attracted $740 million worth of funding, and that rose sharply to $2.7 billion by 2015. The next year, 2016, showed tremendous growth potential and these trends continue. Early-stage investments are seeing strong levels of interest among entrepreneurs, and this is accelerating as the insurance industry and FinTech pool their talents.

Entrepreneurs are investing heavily in all types of insurance. This includes accidental death, life policies, funeral plans, travel insurance, homeowner’s insurance, automobile insurance etc. Conventional insurance companies have been behind the eight ball in terms of effectively utilizing technology to distribute their products and services to a large global audience. FinTech is filling the void. It is also working alongside large insurance corporations to provide them with detailed analytics for underwriting purposes. Insurance premiums vary widely from one provider to the next. The insurance giants are quickly adapting their services to reach customers more efficiently and effectively via mobile technology, and online communication media.

Perhaps the most important area of FinTech development is found in blockchain technology. This is the structural framework upon which all cryptocurrency trading takes place – Bitcoin, Ether, Dogecoin, Litecoin, Dash etc. In the United States, the health insurance FinTech boom is particularly bullish. Broadband Internet has facilitated rapid growth in FinTech technology, and the Internet of things is making data collection from a myriad of devices (smartphones, tablets, phablets, smart wearable technology etc.) possible.

Fintech & Insurance in South Africa

An innovative new solution to FinTech and insurance recently launched in South Africa. This new Insurtech company is already making waves. The South African insurance industry is robust and highly profitable. However, it is also ready for the disruptive effects of FinTech technology. The chief executive officer of the company – Anthony Miller – has teamed up with Shaun Dippnall and Simon Nicholson (both actuaries) to provide insurance to households earning less than R30,000 ($2,200) per month. Every year, the South African life insurance market writes an estimated R10 billion in premiums (2014 figures).

According to Miller, a third of South Africans have funeral cover and some 40% of them have multiple insurance policies. On the flip side, just 6% of SA citizens have life coverage, with an even smaller number having disability insurance. The problem according to the Insurtech company is that traditional insurance policies are aggressively collecting on their premiums, and too many South African households have no life insurance at all. This means that when the primary breadwinner passes, families are left to fend for themselves with little or no support.

A stunning 50% of South Africans are in debt and this is a complicating factor in people who are seeking life insurance coverage. The inability of traditional insurance giants to provide cutting-edge FinTech services to the clients is their Achilles’ heel. The approximate cost of R100,000 life coverage is R92 per month, ($7), and the registration process is quick and easy to complete. Since FinTech is geared towards mobile functionality, the new startups are going after South Africans on their mobile phones. Land-based Internet services are few and far between in South Africa, but mobile Internet is huge. This FinTech startups has already sold 2,500 insurance policies with over R1.1 billion in life cover alone.