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Why technology is disrupting the insurance industry

 

What investors see in the insurance industry

It seems like every week there is a new headline about HR software securing millions of dollars of funding. Just recently, Zenefits founder Parker Conrad made headlines for raising $45 million for his next venture, Rippling. In fact, according to CB Insights, more funded startups are operating in health insurance than all other insurance types combined. Further, Grand View Research projects the market will be worth $30 billion by 2025. Billions of dollars are being pumped into the insurance tech industry, but why?  Here’s what venture capitalists are seeing:

An opportunity from the ACA

What did it take to disrupt an industry that has operated relatively the same for decades? Like many industry shake ups, it took regulation. The Affordable Care Act set the stage for change and is the reason why the majority of the tech startups focus on benefits specifically. Now that the ACA has been in place for nearly a decade, a lot of these systems are evolving to tackle the full HR ecosystem, from benefits to HR administration and more.

An industry behind the times

Beyond regulation, investors are seeing an industry that was dominated by paper processes and relatively untapped. Following behind the financial services industry, the time has come for insurance.

Nektarios Liolios, managing director of Startupbootcamp Insurance describes the interest: "There seems to be a lot of hunger. I think they [investors] recognize that the financial world is in the process of doing this and the insurance world is lagging behind."

Demand from consumers

With Millennials officially surpassing baby boomers as the largest generation in the workforce, expectations are shifting. There is a growing expectation that benefits and HR should provide the same online experience that users are familiar with in retail or financial services.

Whether a benefits and HR tech startup is targeting employers, consumers, or the insurance brokers themselves, this changing expectation is unwavering.  

Regulation

With all of the investments being pumped into the insurance industry, some startups are facing regulatory challenges. Like Zenefits learned the hard way, the highly regulated insurance industry can be challenging for tech startups used to operating with a “move fast and break things” mentality.

Will we continue to see technology disruption in the insurance industry? Only time will tell, but if the millions of dollars being invested into HR software is any indication, technology is here to stay in the insurance industry. To continue to be successful in insurance, companies must adapt or prepare to dwindle.

This blog was originally published in 2016 and was updated in 2019 to reflect new information.

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