Seemingly out of nowhere, insurance tech is suddenly hot. Earlier this month, Honey, a home and contents insurance startup that few had heard of, made global headlines raising Australia’s largest ever seed round, coming in at around $15 million. That’s remarkable when you consider that most rounds in Australia are less than $1 million.
What could be seen to be more astonishing is that this happened during a period where the mainstream insurance industry is getting slammed. It is seemingly being plagued by annual fires, an unfortunately slew of once in a decade storms, and a once in a century pandemic, all of these major events are forcing insurers to pay out claims and increase premiums.
It seems counterintuitive that this would be a time for insurance to thrive. But adversity breeds innovation -- and that’s exactly what’s happening here. This heightened focus on insurance in the past year or so, has really highlighted the opportunities in how it can be disrupted.
COVID-19 in particular has brought forward a number of test-case claims with travel insurance, health insurance and business interruption insurance. There’s countless stories of businesses and consumers around Australia that have been stung by assuming that their insurance covered a particular circumstance, but then realising shortly after the fact that it does not.
So what’s the innovation here? The biggest change is the use of third-party data to help accurately determine the right protection for the customer. This could be from banks, accounting platforms like Xero or MYOB or other fintechs.
There’s more access to third-party data than ever before, especially with the Consumer Data Right rolling out in Australia. That data allows insurers to better categorise your level of risk, and offer the right product to give the customer the product for their needs. That doesn’t necessarily mean cheaper insurance, but a policy that will do the job of covering you for a relevant incident if you make a claim.
In addition, rather than forcing the consumer to eyeball a detailed policy exclusion document, insurers will proactively be able to help the consumer to quickly and easily get the level of cover that’s relevant to each case. It will also greatly reduce the length of the assessment you have to answer every time you apply for insurance.
It has to be said that in rare instances, this innovation will push a few premiums higher -- but then the insurer will be able to precisely communicate to the customer why this is the case.
This access to data will also allow for dynamic insurance that’s updated as your circumstances change. Say if you buy a new set of tools for your work, and enter that onto your accounting platformer. Your insurer will see this, and can notify you immediately if your current policy covers the repair or replacement of them. If needed, they also adjust your policy accordingly.
All of this will also ease the process of making an insurance claim too, as the usual claim process will be eased up and expedited. That will benefit the bulk of us. There will always be fringe cases that need to go through a more rigorous assessment process, and perhaps even be tested in court.
Investors have recognised just how powerful all of these innovations are, hence why there’s now a sudden uptick in investment. Interestingly, some of the most bullish investors on this in the sector are insurance companies, many of whom rely on legacy technology to run their operations. They recognise the power of these innovations and of the new platforms powering it. It will have a direct impact on their bottom line and they are keen to get ahead of it, rather than wait for it to catch up to them.
Overall, the insurance tech sector is still small -- and it makes up only a portion of the overall funds being poured into fintech in Australia. But I believe it would be naive to assume this is a flash in the pan. Especially considering how fast the broader fintech sector has grown. That’s been on the back of major bank partnerships, and insurtech is very much on the same trajectory. With our growing access to quality data, increasing tech capability and overall financial smarts, Australia is well placed to be a global leader of innovation in this sector.
-Nigel Fellowes-Freeman, CEO, Kanopi