Insurance startups are not a new concept. Large insurers have been partnering with tech companies like Guidewire (NYSE: GWRE) and Duck Creek (Private) for years in order to digitize their data and increase operational efficiencies. Recently, a new class of “insurtech” companies have been threatening large insurers by eroding their market share a little at a time. These companies offer unique product lines and user friendly purchase options, that target younger customers. These startups have already gained traction in an industry primarily known for venerable, old institutional players (Lloyd’s of London is 330 years old!).  These startups, companies like Lemonade, Insurify and Ladder, are making substantial headway into insurance markets. By June of 2017, Lemonade was boasting of 15,000 active policies; impressive, considering they only launched in September, 2016.

Large insurers have been discussing what to do about the threat of these smaller companies eating up market share. Hour long panels at conferences like Insuretech Connect and Insurtech Rising have been devoted to talking about approaches to confront the threat.

Until now, underwriting and risk analysis have been the focus of innovation in the industry. Companies like Cyence, a cyber risk modeling firm, and Liazon, acquired by Towers Watson, focus on infrastructure and reducing risk. However, companies like Lemonade and Insurify are beating incumbents by focusing on customer experience, ease of use, and transparency.Clean and user friendly experiences are a welcome deviation from how most insurers onboard new customers or handle long term policyholders.

Similarly, Insurify focuses on a streamlined approach and ease of use, not to mention beautiful design.

Although startups are gaining marginal traction, they aren’t even close to approaching the DWP of, say, a regional P&C insurer. Most of these startups only focus on a few lines of insurance. Lemonade, for example, only works with renter’s and homeowner’s insurance. They are not designed to underwrite riskier products that larger insurers are well versed in. These startups also tend to only target consumer policies rather than commercial products.

Many insurers have already begun to take defensive measures against upstart insurers taking even more market share. One strategy is to partner with or acquire startups before they become a problem. Another approach is to adopt some of the tactics that startups have already been using. For example, Allianz, a major insurer based in Germany, founded an internal incubator, AllianzX, in order to foster innovation internally. Similarly, insurers participate and invest in external programs like StartupBootcamp, in order to nurture startups into viable partners.


Lastly, incumbents can partner with predictive analytics firms to compete with startups. Relativity6, for example, has partnered with insurers to predict cross-sell opportunities for customers based on transactional data like purchases, internal policy data and several other data sources. This service can be especially useful as incumbents begin to open new lines of business to compete directly with startups. For example, questions like, which customers are most likely to want to switch from traditional car insurance, to “pay-per-mile”, Metromile-style, insurance, could be answered.

Only by maximizing customer loyalty and minimizing churn, can insurance companies expect tangible business benefits through increased revenue and reduced customer acquisition costs. Incumbents finally making a conceded effort to focus on customer-centric interactions could spell the end to startups like Lemonade in the future.