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This Antiquated $1.2 Trillion Industry Is About to Experience a Major Disruption – Here's How to Profit

Dealing with insurance companies is usually, if not always, frustrating and a waste of time that leaves one party (always the claimant) unsatisfied and upset. The truth is the entire insurance industry is in desperate need of a shake-up, for a lot of reasons, not just customer dissatisfaction.

Finally, there are companies willing to take the antiquated industry to the mat.

Of course, they're tech disruptors. The new game is "insurtech."

Insurtech – "insurance" plus "technology" – refers to technology solutions that lessen not only the amount of money and time people have to spend dealing with insurance companies haggling over claims, but the time it takes to process everything related to every aspect of the insurance business.

The people and companies who are finally taking on the ancient multitrillion-dollar behemoth are tearing into the startup field at record pace.

And older insurance companies have no clue what to do about it.

But there's still time for you to avoid being left behind.

Today, I'll cover what you need to know to get your feet wet and how to dive into the deep end…

Out with the Old, In with the New

You can tell that an industry is ripe for disruption when some of the insurance companies we regularly do business with have been around for 225 years and haven't changed much.

The insurance industry consists of roughly 6,000 companies that collectively contribute about 2.6% to U.S. GDP. Though the industry has survived every curveball thrown at it (keeping up with a changing society, the frauds, the lawsuits, and more), it is hardly a well-oiled machine.

Frankly, we're way overdue for a revolution.

The insurance-disruptor startups rocketing into view have their work cut out for them, but venture capitalists are eager to help them get there.

When I say the insurtech field is exploding, I mean it.

The number of top insurtech startup companies is about 100, but there are plenty more waiting to make a name for themselves. All these players have been gathering up seed money and a full stable of private investors… to the tune of about $2.6 billion last year.

The rate of growth in funding is significant. According to a report from Business Insider, funding for insurtech quadrupled year over year from Q1 2015 to Q1 2016. If that doesn't sound impressive, just take a look at the chart below:

insurtech-financial-trend

Notable startups include names like Lemonade, Next Insurance, Insureon, and Trov.

All of them are homing in on trends that Big Insurance has so far missed.

The top trends people have been desperately waiting for in this archaic industry essentially boil down to saved time, money, effort, and brain power. In this day and age, consumers want to take care of something within 15 minutes from the comfort of their home or car. They want honest pricing; they want to be able to comparison shop; and they want to comprehend what they are signing up for.

Disruption in this industry means saving both consumers and companies time, money, effort, and pain.

Some of the trends to look for in a truly disruptive insurtech startup are:

  • Peer-to-peer (P2P) insurance, a model that decreases costs as well as fraud
  • Honest price comparisons
  • Digital broker platforms, as in an app with AI functionality that can assess your needs quickly
  • Cloud-based digital services
  • Collaboration with traditional insurers
  • More accurate risk assessment

These are the shifts to expect as opposed to the continuation of old-fashioned business practices.

One Big Name with Big Ideas

wsii-figure-1-highlights-pwc-fintechNeedless to say, the big names are scared.

The biggest, oldest insurance institutions can see revolutionary insurtech coming, but don't quite know what to do with it.

According to a June 2016 survey, three in four insurance companies believe their business is at risk, but still a third of insurers have no new tech at all.

Industry analysts estimate they will lose 20% of their business to startups by the end of this decade.

A few are responding by directing internally run venture capital funds to chase promising investments. One example, Allianz, Germany's largest insurance and asset-management company, in 2016 launched Allianz X, dedicated to financing and developing insurtech startups.

Canada is also stepping up to the challenge. Their test bed for insurtech and fintech innovation in Ontario is known as the "Canadian Silicon Valley." Startups there have raised $1 billion in funding since 2010. Canada's head start will secure them a strong foothold on this new frontier.

The United States has been slower to the punch, though there are now several American venture capital firms looking for promising startups to flood with resources.

But we're looking for a way for the average investor to get involved right now.

There aren't any "listed" opportunities to make a "pure" insurtech trade yet… None of the startup darlings are publicly traded. But by finding traditional companies making the right moves towards the trends I mentioned above, I'll get us in on this wave early enough.

The most progressive insurance company out there right now is Progressive Corp. (NYSE: PGR).

It's a cheap stock for being the nation's fourth-largest auto insurer, with impressive growth over the past year. And they're the first "traditional" insurance company starting to incorporate the kind of technologies bound to make them an insurtech leader.

How Progressive Is Already Changing the Game

  • Snapshot® – a small device you plug into your car that monitors responsible driving and deducts costs accordingly
  • Name Your Price® – you let them know your budget for insurance and they tell you what that price covers
  • Comprehensive rate comparisons
  • A smartphone app

Compared to the insurance industry as a whole, it has healthy stats. It has a forward PE multiple of 16.54, compared to the current PE of 26.63 for the S&P 500.  Its beta is at 0.87, making it slightly less volatile than the markets at the moment. Revenue increased 15% annually from 2013 to 2015 and is expected to continue on that trajectory for at least the next five years.

The progressive part of Progressive is its Business Innovation Garage, its internally funded think-tank pursuing insurtech solutions is a race to outmaneuver more nimble startups.

It's got insurtech written all over it and is an excellent jumping-off point before these startups go public.

I've got both eyes on the insurance industry, looking for breakthroughs and breakout investment opportunities headed our way, which I expect to start surfacing later this year. So stay tuned.

Sincerely,

Shah

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About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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