Investment in insurance technology soared in 2015. And it’s set to climb again this year. Funding in firms developing technology solutions for the insurance industry reached US$2.65 billion last year, according to researcher CB Insights. This is more than three times the spend in 2014.

After many years in the shadows, the insurance industry is firmly in the spotlight. Throughout the world, technology firms and their investors are clamoring to get a foothold in the market. A slew of smart start-ups have sprung up and are attracting heavyweight financial support. They include US companies Zenefits, Oscar Health, Clover, Collective Health and Gusto (formerly ZenPayroll) as well as Chinese innovator Zhong An. Each of them has pulled in more than $100 million in backing.

This enormous surge in investment has the potential to disrupt the insurance industry massively. It’s already reshaping health insurance. And soon almost every other sector of the industry will have to deal with rising competition and innovation. Much of it will come from new entrants to the insurance industry.

Before I look at some of the effects of this investment splurge, let’s take a step back. Why are big investors pouring money into insurance technology? Of course, rapid advances in digital technology, especially mobile communications, cloud services and data analytics, are driving big changes throughout the business. Agile companies are using digital technology to leap-frog competitors by delivering highly personalized online customer services and creating new, lucrative markets. But why is the insurance industry attracting so much attention from investors?

Well, the answers give some interesting insight into what is likely to happen in the next few years.

Market size – With annual premium revenue of around $5 trillion and assets under management close to $15 trillion, the global insurance industry is an enormous potential market for technology suppliers and their backers.

Technology shortfall – Insurance providers are well behind most other financial services firms in their investment in technology. Furthermore, spending has tended to focus on productivity and efficiency improvements rather than raising customer satisfaction and developing new business opportunities.

Conservative industry – The insurance industry throughout most of the world has changed little during the past 50 years (some might say 300 years!). Big, established carriers have become successful by prizing stability and caution above innovation and agility. This has created plenty of opportunities for nimble and inventive newcomers to the market. Of course the jury is still out on whether these new entrants will be able to transform the industry. But the chances are higher than ever before.

Detached customers – Insurance is a grudge purchase for many consumers. Relations between insurers and customers are often distant and contact infrequent. Customers are increasingly looking to their insurers to provide them with comprehensive online services similar to those they experience in other retail environments. Few can currently meet this expectation. As mentioned in an earlier blog post, one of the new mantras to emerge from the Digital Insurer Network that Accenture is running is “From touch points to trust points”. Traditional insurers need to not only increase the number of touch points they provide their customers. They must also add frequent digital interactions that  build the trust of consumers.

Untapped market – While many insurers enjoy large and well-established pools of customers there are big populations of people, especially young individuals and low-income earners, who do not buy insurance products and services. The predominant paradigm of the industry remains: “insurance is sold, not bought”. Winning the hearts of new customers will be a big challenge. But it’s vital.  Otherwise they’ll take up the insurance options that are being increasingly bundled with the sales of products such as cars, mobile phones and kitchen appliances.

Deregulation – The insurance industry throughout the world is heavily regulated. But changes in regulations in the U.S. and Europe have opened new opportunities for insurance providers. Some new entrants to the industry may benefit from some “regulatory arbitrage” until regulations are further adjusted. This is happening to some extent with start-ups such as Uber and Airbnb.

Could you ask for better conditions for disruption? It’s clear from the list above that the insurance industry is ripe for transformation.  Technology innovators and savvy investors have spotted an opportunity to make their fortunes in the forthcoming upheaval. Many insurers have also recognized what’s coming and are beginning to change their businesses to meet the challenges that lie ahead.

Who will succeed and who will fail? It’s too early to tell. But the stakes are high for everybody.

In my next blog post I’ll discuss how the surge in investment in insurance technology is changing the industry.

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