Why Technology Has Failed To Disrupt Insurance

He has invested billions. Hundreds of new companies. A lot of encouragement. The idea that the century-old insurance industry could be transformed by new technology has intrigued investors and entrepreneurs for years.

It's easy to see why they need insurance: they're big, they make good profits, and they've been doing business the same way for decades. By incorporating some artificial intelligence, some big data and some easy-to-use apps, the argument goes, you should be able to capture a fair share of the market.

Many bought the idea. According to insurance company Gallagher Re, more than $40 billion has been invested in so-called insurance startups globally over the past five years.

However, consumer insurers are not affected. For example, the biggest car insurance companies in the UK were the same companies ten or two years ago: Aviva, Admiral, Direct Line and others. It's a similar story in the US and sure enough, the auto and home insurance we all buy has changed quite a bit. Yes, we can buy from price comparison sites instead of high street agents, but the general principle is always the same.

Contrast this with revolutions in retail, travel and many other industries.

Waves of newcomers have struggled to make big waves so far. US-listed Lemon, one of the best-known insurance startups, is losing money and is expected to continue losing money this year and next. Shares have fallen 59 percent in the past year. Other US-registered insurers such as Hippo and Root fared little better.

In the UK, companies like ByMiles (pay-per-mile car insurance) and Kuva (short-term car insurance) have bright ideas and are thriving, but have so far under-entered the car insurance industry. £16 billion.

The biggest problem with these startups is that it's hard to get people interested. "Consumers don't care enough about insurance," says Paul Date, consultant at Oxbow Partners. "Most consumers have a very competitive market where they're price-conscious. They don't care much about functionality. It's one thing to get an audience excited about the latest iPhone innovation. The bigger challenge is engaging them in the latest. Insurance innovation."

So the new companies have to compete with the big operators in terms of prices. Lemon was launched in the UK last year. The website tells a story. After telling viewers to "forget everything you know about insurance", the next line reads: "Protect your property for £4 a month". There is much less explanation of how the policies work and what they intend to support

You have to work hard to get business. This means making many expensive purchases through direct mail or price comparison sites. Word of mouth only goes so far with insurance companies.

And Balderton Venture Capital Group's Rob Moffat says they need to get better at handling claims by eliminating fraud and keeping maintenance costs down. When that spending explodes, smart data or new business models won't keep companies in the dark. Even established insurers are struggling: On Wednesday Direct Line warned about profits as claims costs continue to rise.

Big insurance companies may be tempted to get some relief. Many of the worst storm surges have turned out to be less threatening than most. And with cutbacks and shrinking funding in the tech industry, prospects for big, well-funded new entrants fade.

But the threat is still there. Consumers rarely like insurance, so there's still room for someone to come up with an offer that will change their minds. And big tech companies loom on the horizon. While none of them have made major contributions on the field yet, they are cutting corners. Amazon is the latest and plans to launch an insurance portal in the UK. The look of jealousy did not disappear.

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