Insurtech & Fintech: Top 5 major similarities and differences

Digital transformation is all around it, and its influence can be sensed in every life and business area nowadays. Both InsurTech (insurance technology) and FinTech (financial technology) are suitcase words – words that are composed of two other words. Their recent popularity spike was partially due to pandemic-provoked lockdowns when remote financial services proved themselves to be an invaluable problem-solver for many established and emerging companies.

Working in a bespoke software development company with experience in FinTech and InsurTech startups, I know the real value these next-generation products and services bring to our globalized community. We increasingly live in a digitally dense world, relying on smart software solutions for our daily financial and insurance operations. Never in the history of humankind were the financial and insurance markets so accessible for ordinary people than today. The democratization of financial services is one of the leading factors for fast-paced technological innovation, and chances are this trend will soon disrupt existing structures.

InsurTech and FinTech certainly have lots of touchpoints, but they also differ from one another in terms of key technologies, use cases, and business prospects. Let’s see the top five major similarities and differences between them. 

FinTech and InsurTech: Top Five Similarities

Client’s Needs Come First

The key focus area for both companies is the strong emphasis on clients’ needs. Each potential idea should fit into the broader user-centric approach and actively contribute to delivering more business value. The more reliable and smooth customer experience companies can provide, the more trust and credibility they gain among their customers. The trust issues towards traditional banking after the economic crisis is still sensible, especially among younger generations. For example, millennials prefer to handle their finances on their mobile devices conveniently. Being technologically savvy consumers, they prefer to have complete control over their transactions whenever they choose to.

The Innovative Mindset

Apart from the heavy focus on clients’ needs, InsurTech and FinTech companies also share a common innovation-driven mindset when developing their products. This includes a strong personalization, which is a brand new business approach to providing services. Prior to the emergence of advanced insurance and financial software solutions, the end customers had to agree with terms and conditions, which they didn’t even understand at times. Now, clients can customize their services, have them available 24/7, and even pay less for this. If this is not innovation, what is?

Focus on Emerging Technologies

One of the biggest similarities between the two companies lies in the focus of their products and services. InsurTech and FinTech direct their business efforts on emerging trends and technologies such as Artificial Intelligence (AI), Machine Learning (ML), or IoT(Internet of Things). However, blockchain technology is the ultimate game-changer as it makes transactions and contracts transparent, verifiable, and forgery-proof. The core idea of the blockchain is quite simple: You can think of it as an open ledger that keeps a digital list of all transactions from cryptocurrencies or Smart Contracts. The unique thing that makes blockchain stand out is decentralization. Financial transactions aren’t stored centrally on one computer but saved and updated on many different computers. This system ensures that the blockchain does not have to and can’t be managed by a single central authority.

A Common Threat to Traditional Institutions?

Revolut, Stripe, PayPal, Knip, Square, Check24 – there are now various international companies for putting together your financial portfolio on the Internet at your own pace and on a budget. According to McKinsey Research, during the Covid-19 crisis, attitudes towards FinTechs among US account holders changed, and competitive startups gained more popularity. This is still valid for all four types of financial services, including banking, payments, investments, and lending. Global InsurTech trends also reveal the same – changing customer habits and dynamic requirements urge for reliable digital technology adoption. Many experts now wonder whether they threaten traditional banks and insurers and will overtake them altogether or whether they are merely complimentary to the market. 

The Pressing Need for Regulation 

Another similarity between the FInTechs and InsurTechs lies in the areas of competition and leadership. As digital financial services grew exponentially during the pandemic, this also accelerated regulatory incentives. An article in the Wall Street Journal recently stated that the Bank of International Settlements considers that digital banks and insurers need to face “stricter regulatory scrutiny” as their systematic importance to the market constantly grows. To this date, there are ongoing initiatives such as the so-called regulatory sandbox with listed guidelines and principles for InsurTechs and FinTechs to provide innovative services on a legal basis. 

Also Read: The Difference Between Artificial Intelligence, Machine Learning, and Deep Learning

InsurTech vs. FinTech: Top Five Differences

Different Main Business Areas

The first difference between InsurTechs and FinTechs is a no-brainer. These two sectors essentially provide different digital products services, although sometimes these might overlap and even merge, e.g., AI underwriting. When it comes to InsurTech services, these might cover individual virtual brokers, contract management, P2P insurance, health insurance, or spot insurance for short-term insurance policies. FinTechs, on the other hand, offer P2P lending, digital wallets, crypto investing, stock exchange, and alternative credit scoring. 

Different Market Value 

Both sectors are currently in the spotlight, though one of them receives more attention. The global InsurTech market was valued at $2.72B in 2020, and expectations are that it will continue to expand with a compound annual growth rate (CAGR) of nearly 49% until 2028 further. The forecasts about the development of newly emerging FinTechs vastly exceed that of InsurTechs. The expected market value of FinTech companies is said to reach $324B by 2026, with a CAGR of about 23%.

Different Fastest Growing Markets 

We can observe differences when it comes to fast-paced developments in changing markets. According to research, the fastest growing market region for InsurTechs is in the Asia Pacific, while the largest market remains in North America. The case with FinTechs is slightly different with strong positions in both Europe (Switzerland, the UK, Sweden, etc.) & North America and quickly growing regions in the Middle East and the Asia Pacific. 

Different Marketing Strategies 

There are also some differences in regards to the marketing and advertising approaches of FinTechs and InsurTechs. While both sectors rely on multiple digital channels such as social media, email, podcasts, etc., the enormous recent interest in cryptocurrencies and non-fungible tokens (NFTs) and strategic partnerships with football teams give FinTechs a stronger competitive advantage.

Also Read: 10 Emerging Technologies that will be a reality in 2025

Enablers, Distributors, or Challengers? 

A growing number of FinTech and InsurTech startups choose to position themselves as one of the three main types of companies: enablers, distributors, and challengers. The difference between them can be traced back to their relationship with traditional institutions. Enablers are companies that provide specialized services at each stage of the value chain. Distributors, on the other hand, work closely with established institutions to facilitate their digital transformation. Last but not least, challengers are businesses that concentrate their efforts on introducing completely new and innovative business models.