According to Sabine VanderLinden, chief executive and managing director at Alchemy, an insurance venture validation firm, disputes over coronavirus business interruption (BI) claims have exposed gaps in insurance policies that insurtechs could fill.
“A few [insurtechs] coming into the market will probably start looking at those gaps, and for me the gaps will be mostly around emerging risk: freelancer insurance, cybersecurity as remote working is bringing more risk,” says VanderLinden.
“As [the pandemic] is providing new learnings and therefore bringing new technology to bear, this is also going to bring a lot of new emerging risk, and that becomes a really great opportunity for insurtechs to look at.”
UK insurers are currently being taken to task for their response to the pandemic. On June 17 the Financial Conduct Authority (FCA) published guidance on insurers’ handling of BI payouts, requiring insurers to review their non-damage BI and report on the outcomes by July 8. Insurers will also need to consider communications to individual policyholders who have made a claim in light of the guidance by July 15, after which there will be a court case to clear up contractual disputes.
On June 15, Hiscox Action group commenced an arbitration against Hiscox Insurance for non-payment of business interruption totalling £40m. Hiscox is one of the eight insurers to have been called on by the FCA to participate in the court case.
Elsewhere, the US has seen over 100 federal cases on business interruption, the FT reported.
“Yes there are these court cases, but learning from this experience insurtechs could be able to deliver more transparent polices, and smaller policies,” says VanderLinden, adding that most customers do not require large payouts in the event of business interruption.
“A coverage of £10,000 – that’s a big difference from £100,000 which are often the payouts from those business interruption policies … No one thought there would have been a pandemic, but I’m sure [small and medium-sized enterprises] (SMEs) would have loved to understand what it means to be covered for a pandemic, or what it means to be covered for cyber risk. Often the terminology is so complex that young businesses do not really understand why they need to actually take this seriously.”
She believes that future investment into insurtechs from venture capital firms or partnerships with traditional insurers will focus on providing support for SMEs. Being more agile and adaptable, insurtechs are better suited to address specific needs highlighted by the pandemic, she says.
“I think there is an opportunity for transparency, trust and integrity. And I’m not saying that large insurers do not have integrity, but they are so big and so legalistic that they sometimes miss the empathy side. You can’t be empathetic to everyone because then you don’t have a business to run,” she says.
Despite future opportunities, the insurtech market has suffered in recent months. While quarter one of this year yielded the insurtech industry $912m (£731m) globally, the vast majority of these earnings came pre-coronavirus; the first three days of the quarter saw the same amount of money raised as the last three weeks, according to CB Insights.