For traditional auto insurers, there’s a new kid on the block: Root Insurance. The startup, which claims to be the easiest way to get car insurance, launched this week in Ohio and plans to be operational in 10 more states early next year.
Like other so-called insurtechs, Root has put software at the core of its business, with the goal of delivering a better, more personalized product and customer experience. In fact, all interaction with the company is done via its mobile app—from receiving a quote, to purchasing the product, to filing a claim.
What’s more, Root is leveraging predictive analytics technologies to deliver personalized auto insurance products based on customers’ actual driving behavior. While products based on insurance telematics have been around a few years, Root does not require installation of a physical device, using instead mobile GPS data collected by the app.
According to the company website:
Through the Root app, we look at real-world driving data like mileage, routes, and speed to determine precisely how safely you drive. In order to accurately determine your quote, we run your ambient driving data against our predictive algorithms to determine your specific level of risk. It considers hundreds of factors, such as mileage driven, hard-braking, dangerous routes, driving regularity, time of day, and much more.
Root claims that for a good driver, car insurance is “an order of magnitude cheaper” than the alternatives. Interestingly, because they require drivers to use the app for a couple of weeks in order to receive a personalized quote, they’re able to generate a risk profile and actually divert bad drivers to other providers rather than take them on as customers.
Legacy and lack of agility hold many insurers back
While it’s too early to tell just how successful Root will be, it’s clear that insurtechs are raising the bar for the industry at a time when customers are demanding more from insurers based on their experiences with consumer brands. This is putting a lot of pressure on established insurers to transform their products and services in order to remain competitive.
According to a recent Gartner survey, digitalization is one of the top priorities for insurance CIOs. Yet, the vast majority are struggling to progress their digital strategies, as only 12% of insurance business and IT leaders consider their organizations to be digitally progressive. Reasons for this include a lack of agility caused by legacy IT systems, flat IT budgets and a lack of the right skills to support innovative business models.
A different approach is needed to fast track product innovation
While Gartner encourages established insurers to acquire or partner with insurtechs in order to remain competitive, many carriers have found their own way to rapidly deliver innovative new products. For instance, LV= Insurance’s fast-track innovation team is leveraging a Low-Code Development Platform in conjunction with the agile methodology to accelerate digital product delivery.
This month, LV= was shortlisted in the Post Digital Insurance Awards for the launch of QuickCover, a new digital product that allows customers to purchase life insurance in less than five minutes. The application, which was designed to deliver an end-to-end mobile experience, took just three weeks to deliver.
Discover how to deliver new products like an Insurtech
The pace at which new insurtech startups are entering the market is accelerating. Last year insurtechs raised $2.6 billion—more than the previous five years combined. This number will only grow for the foreseeable future, putting incumbents in all sectors of the insurance market at risk of disruption. According to a PwC survey, almost half of insurance companies think they will lose 20 percent of their business to insurtech companies over the next five years.
The time to act is now.