News of a rising star from among the fintech subsectors has begun circulating throughout the galaxy, and according to some has made it as far as the Outer Rim. As the US fintech industry at large begins to show signs of maturation, with 2Q16 total funding down over 50% annually and 25% sequentially, insurtech (insurance technology) continues to expand within the fintech sector. Industry reports and forecasts therein also project continued growth in insurtech funding, especially in peer-to-peer insurance models, which have gained substantial media attention this year.
To those who share or are familiar with the repugnance felt by so many consumers towards the insurance industry, this recent hike in insurtech activity may have you scratching your head. After all, with only 60% of US adults holding life insurance policies, and that percentage declining year-on-year, it is clear that many consumers don't feel the need to bother with insurance policies. So why the sudden hype around such an ugly insurance industry?
An investments professor once told our class, “Remember, there is always value in ugliness.” The world’s first peer-to-peer insurance carrier Lemonade is capitalizing on this investment thesis. Although Lemonade has yet to launch their platform (the technology behind which they are nearly as secretive about as $4.5B valuation AR startup Magic Leap), investors are lining up to get involved. Among those investors is XL Innovate, the VC firm that last month made an undisclosed sizeable investment in the company. Lemonade attracts investors like XL Innovate by entering an ugly and antiquated insurance industry, harnessing big data and machine learning, and taking advantage of trends in crowdsourcing and digital socialization. Lemonade is doing what traditional insurance carriers have not and cannot: “Lemonade is remaking insurance as a social good, rather than a necessary evil.”
Other insurtech startups are targeting niches within the insurance industry. RediPay, an insurtech company out of fintech innovation hub Charlotte, NC, is closing the gap between insurance providers and patients by facilitating employers’ delivery of vision and dental insurance to their employees. In a millennial world where transparency, affordability, and efficiency are baseline standards as opposed to privileges, companies like RediPay that effectively leverage tech and navigate the industry’s regulatory barriers to entry are destined to restore balance to the inefficient insurance empire.
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