Insurtech is a new buzzword which can be said as Regtech for Insurance. Just like Regtech is Regulatory Technologies, Insurtech is Insurance Technology. Insurtech is a little bit more complicated as essentially it is an extension for Fintech and Regtech in new market context. It is a new Fintech application which heavily touches consumer convinience and experience. So in a gist Insurtech is Technology for Insurance but sometimes it can be more disruptive and very different.
Why Insurtech is Complicated?
As we see the Insurance markets are extremely and highly regulated. They are heavily regulated than banks, Listed Companies and other Fintech institutions. Following are the points because of which Insurance Companies are heavily regulated-
- Dealings are fundamentally in Risk and Risk Managements. Wrong projections for payouts can detrimental to investors and customers.
- It is always easy to sell cheaper insurance but which can result to Fraud or Illusion. For eg. Insurance against a Catastrophe Event.
Case of AIG in 2008 Financial Crisis
2008 saw a big Financial Crisis in USA which is also known as Global Financial Crisis. At that time AIG (American International Group) an insurance giant company sold Insurance against the event that it never thought would take place. For a considerable length of time, AIG was the world’s greatest Insurer, an organization known far and wide for giving insurance to people, organizations, and others. Be that as it may, in September, the organization would have gone under on the off chance if it were not for government help.
The AIG was given an alternative. Why not guarantee CDOs against default through credit default swap? The odds of paying out on this protection were exceptionally impossible, and for some time, the CDO insurance plan was very fruitful. In around five years, the division’s incomes ascended from $737 million to over $3 billion, about 17.5% of the whole organization’s aggregate.
One huge piece of the insured CDOs came as packaged home loans, with the most minimal evaluated tranches included subprime advances. AIG accepted that what it guaranteed could never must be secured. Or on the other hand, in the event that it did, it would be in immaterial sums. But when foreclosures rose to incredibly high levels, AIG had to pay out on what it promised to cover. This, normally, made an immense hit AIG’s income streams. The AIGFP division wound up bringing about $25 billion in losses, making an extreme hit the parent organization’s stock price.
Hence we can say 2008 financial crisis created tremendous Opportunities for Insurtech.