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Startups are providing a wakeup call to the insurance industry giants

In the last few years, the traditional stodgy financial services sector finds itself where the travel and telecom industries were a few years ago: having to wake up to a new reality. The traditional industry giants are facing growth challenges, and are even shrinking, while many of the customers prefer online services offered by smaller startups with brands that most of us have never heard of.

This phenomenon is most apparent in insurance where giants such as MetLife, Prudential, Allstate, and AIG have seen their shares drop in March while finishing the year with a reduction of -8% to -25%. Their inability to provide a service that meets modern customers’ needs leaves the door wide open to new entrants that are unhinged from old-world processes and are able to quickly adapt to customers’ expectations.

The current economic uncertainty caused by the Covid-19 pandemic, resulting in high unemployment rates together with low interest rates, have added up to what looks like a future of continued struggles for these insurance giants in the next few years.

But it’s not all bleak. For some insurance startups, which are often called Insurtechs, 2020 was a year of massive growth, bolstered by the Covid-19 outbreak. Lemonade, an online insurance company that sells renters and homeowners insurance, just announced that it has reached one million customers after just four years in business. It took State Farm Insurance 22 years to reach that milestone. Driven by similar online growth, Next Insurance, a company selling commercial insurance for small businesses, and Hippo, a company selling homeowners insurance, have raised hundreds of millions of dollars with valuations at the $1.5 billion – $2 billion range. Read from source….