Key Takeaways
- In the literal sense, FinTech stands for financial technology. It means any and all technology that improves financial services.
- It has multiple sub-sectors within it, from payments to lending, banking, infrastructure(API level solutions for KYC, infra, etc) and insurance as well.
- InsurTech is the amalgamation of two words – insurance and technology. It often refers to using technology to improve customer experience, backed management and create further personalised products.
How different are they?
- Different scope
- Globally different, FinTech is dominant in India, while most InsurTechs are from the USA.
- They solve for different things
- Investments made in InsurTech vs FinTech
- The road ahead
Technology has changed the way we interact with the world around us. Several sectors – minor and major – have seen exponential and revolutionary growth. The financial sector is one of the most active sectors for startups in India, gathering the bulk of the funding today.
Life has changed drastically in the last decade. While the pandemic might play a big role, it has been changing drastically for years even before that.
With extremely low data rates, sudden demonetisation and a rise in the number of bank accounts for Indians, FinTech found the right space to grow and flourish.
It’s no surprise that India had the fastest adoption rate for FinTech in comparison to the world.
Today, we see InsurTech in a similar position. With the advent of the pandemic and the current crisis, people are forced to rely on digital methods to purchase insurance. The maturity of the FinTech products has laid the groundwork for InsurTech to come forth and shine. It is a rather interesting space to be in.
While InsurTech technically falls under the umbrella of FinTech, for the sake of this article, we are looking at technological innovation in the finance sector as FinTech and technological innovation in the insurance sector as InsurTech.
What is FinTech?
In the literal sense, FinTech stands for financial technology. It means any and all technology that improves financial services. It has multiple sub-sectors within it, from payments to lending, banking, infrastructure(API level solutions for KYC, infra, etc) and insurance as well.
It is used to help companies, business owners and consumers manage their finance-related needs through specific solutions ranging from full-stack platforms to just infra APIs.
How has FinTech changed the finance industry?
FinTech has affected several different industries and sectors including banking, education, eCommerce, non-profits and investment management to name a few. It has made making money management(payments, investments, loans etc) extremely easy for customers. While banks had to adjust to the rapid changes, it has benefited the consumers. Which led to an increase in online transactions in 2020. When the pandemic occurred in 2020, FinTech companies are what allowed businesses to run to some extent.
- It has made online payments extremely simple. Now customers can make real-time payments.
- It works as leverage for smaller brands. It helps smaller brands stand in front of established ones, and is part of the reason that e-commerce and D2C brands are seeing such a large growth in India today.
- It has made lending easy. It has allowed for much wider access to credit, and those who previously were underserved now have access to loans at attractive rates
- FinTech has drastically improved the user experience of the end customer and that of the business owner.
Top examples of FinTechs in India
- Razorpay
- Groww
- Upstox
- Cred
- PayTM
- PhonePe
- MobiKwik
To name a few.
What is InsurTech?
Simply put, InsurTech is the amalgamation of two words – insurance and technology. It often refers to using technology to improve customer experience, backed management and create further personalised products. While the focus is on those activities currently, it can refer to all insurance activities that are improved using new technology.
To learn what InsurTech is in-depth, read The complete guide to InsurTech by Rishi Iyer.
How InsurTech is reshaping the insurance industry
InsurTech is changing how we all purchase and sell insurance. We can already see that buying insurance as an end customer has become much simpler, going forth it will only improve further.
- We can see the roots of personalised products Specific products for specific needs with competitive pricing is a change that we are witnessing.
- Simpler claims process. A good example of this is the cash-free claims that some insurers are providing.
- Reduced frauds with blockchain, smart contracts and tracking.
- Parametric insurance is starting up in some pockets of the industry: insurance policies that use tech to monitor for certain events, and based on those events, immediately pay claims to policyholders; thereby doing away with the concept of claim filing.
- Data science has always been a core part of insurance (falls under an actuary’s scope of duties), but now AI and Machine learning are entering the industry as well. Broadly, AI is used for underwriting, streamlining processes and determine risk levels, as well as claims to auto-adjudicate and for fraud detection.
Read more about how InsurTech is reshaping the insurance industry by Mahavir Chopra.
Top examples of InsurTechs in India
- Policy Bazar
- Acko
- Turtlemint
- Digit Insurance
- Assurekit
Should InsurTech even be a part of the FinTech industry? How different are they?
1. Scope
Fintech is a broad industry, including several multi-trillion dollar industries worldwide, like payments, banking, lending, crypto, and more. Adding more sectors under the same umbrella makes aggregation easy, but also dilutes the level of detail or insights that one can gain. For example, May to June 2021 fintech market showed a reduction in value. A slightly deeper look shows that it is the cryptocurrency industry that dipped a lot, all other sectors of fintech are growing steadily.
InsurTech by itself is a separate industry, with multiple subcategories like distribution platforms, digital intermediaries, full-stack insurers, digital advisory, reinsurers, AI platforms for underwriting, platforms for claims, blockchain-based solutions, etc. Merging it with FinTech reduces the deep understanding of the industry. In all, we believe that InsurTech should be seen as an industry by itself.
2. Global perspective on InsurTech and FinTech in India
InsurTech is fast gathering a strong foothold in India. The US is known for having nearly half of the InsurTech start-ups of the world, followed closely by India and UK. The US is also an avenue for 63% of InsurTech investments. Insurance is underpenetrated in India, a market where it is still largely seen as an unnecessary expense.
While many FinTech sub-sectors like payments and crypto are global in their very nature, regulations make the InsurTech landscape very different from one country to the next. Therefore, the challenges that InsurTech face are very different from the ones that FinTechs faces. Furthermore, their distribution structure and ground-level activities will also be different from other FinTechs.
In India, FinTech has a greater presence than InsurTech.
Globally, India has the highest FinTech adoption rate and is among the fastest-growing FinTech markets in the world. The overall transaction value in this market is expected to jump from $65 billion approximately in 2019 to $140 billion in 2023. The difference in scope and nature of the market penetration between InsurTech and other subsectors makes it important to look at InsurTech separately.
3. What do they solve for?
All FinTech & InsurTech startups solve one or more problems amongst distribution, increased penetration and ease of access to products, digital compliance and security concerns, product level innovations, customer experience level innovations.
However, the nature of the industry and products, coupled with regulations, make insurance solutions very markedly different from other FinTech solutions.
Some of the problems FinTech solve include security concerns, access to payment options, limited access to financing etc. It can also reach those who don’t have a bank account and expand access to investing for those who were earlier reluctant.
Likewise, InsurTech is also about solving problems within the insurance industry such as creating affordable products for consumers, making it easy to apply for insurance, risk assessment, fraud detection, and underwriting using AI and Machine Learning techniques.
While the focus currently is on educating the customer, customising covers and helping the customer choose the right product for them.
4. Investments made in InsurTech vs FinTech
The investment gap between FinTech and InsurTech in terms of venture capital investment has been reducing. It has been closed significantly in the US markets and the Indian markets are following suit.
In 2020 India emerged as Asia’s biggest destination for FinTech deals. A total of around 33 deals valued at $647.5 million.
One-third of the total unicorns in India, from a total of 21, are FinTechs. The market was valued at Rs 1,920 billion in 2019 and is expected to reach Rs 6,207 Bn by 2025.
While digital payment has been at the forefront of these investments, it is followed by InsurTechs according to MEDICI India FinTech Report 2020 2nd Edition.
Currently, India is the second-largest InsurTech market in the Asia-Pacific region. It accounts for 35% of the $3.66 billion dollars invested in InsurTech-focused companies in this region according to S&P Global Market Intelligence data.
5. The road ahead
Owing to growth in disposable income and high rates of smartphone penetration, by 2030 India is expected to add 140 million middle income and 21 million high-income households. This will, in turn, lead to demand and growth in the Indian FinTech space.
Fundamentally, many FinTech products such as loans and payments are “pull” products, in the sense that a large chunk of the customer base is actively looking for solutions.
On the other hand, a “push” product is sold, not bought.
The InsurTech industry within India is also set for transformation during the coming decade, with players in the industry looking to challenge the assumption of insurance being a push product, by using personalized products, hassle-free experience, and parametric products for micro and crop insurance.
Even in today’s pandemic-ridden times, InsurTech has ensured that technology-friendly insurance services are accessible to consumers, even in the remotest corners of the world.
We have seen a boost in the overall investment and growth in this space. We are excited to see it mature over the next decade.
Conclusion
Both, the financial and insurance sectors are going through transformations because of the growing importance of digital services and changing client preferences. With the power of automation, smartphone apps and advanced analytics, it will become easier to reach consumers.
It will also make financial and insurance services more accessible and easier to use.
What do you think? Should InsurTech be clubbed under the FinTech bucket or should it be