Insurtech Innovation in the Midwest

Daniel Saunders

Chief Executive Officer

Photo by Christopher Alvarenga on Unsplash

How can the Midwest Insurtech Boom Benefit Corporate Giants?

When asked to name leading innovation hubs, most people mention Silicon Valley, Tokyo, or London. The flyover states of the Midwest are unlikely to make the list, but it’s making a global name for itself as the centre for insurtech. 

How is an area known for cornfields, mining, and factories leading the way in insurtech? And how can corporations benefit from this modern-day midwestern gold rush?  

Why is insurtech innovation booming in the Midwest? 

According to Forbes, five of the top ten states best for starting a business are in the Midwest, but what’s the attraction for insurtech startups? 

• Insurtech entrepreneurs recognise the opportunity to work with major regional players—150 Fortune 500 companies are based in Midwestern states. Insurance giants such as UnitedHealth Group, Nationwide, Allstate Corp., Elevance Health, Berkshire Hathaway Inc. Progressive Insurance, Arthur J. Gallagher & Co., State Farm, Grange Insurance, CareSource, BMW FS and Safelite call it home. These corporate giants can assist insurtech startups through market validation, insights from working in the industry or access to resources which can fast-track their development. In return, the established corporate giants can partner with startups working on cutting-edge technologies, new business models or disruptive solutions transforming the insurance market. 
• Low costs. The region offers some of the lowest corporation tax (or no corporation tax in South Dakota, Wyoming and Ohio) and a low cost of living. It means initial capital can stretch further—an advantage over counterparts in high-cost hubs like Silicon Valley.  
• Talent from universities. The Midwest is home to a cluster of high-quality universities; the University of Chicago, Notre Dame, Northwestern, Wisconsin, Michigan, Illinois, and Carnegie Mellon. A quarter of all US computer science students graduate from the Midwest, which gives insurtech companies first pick from a pool of incredible new talent.  
• Innovation is in the Midwestern blood—19% of all US patents are registered there. Innovative startups and a thriving ecosystem attract venture capital to the area, feeding its growth.  

How can corporations capitalise on Midwestern insurtech innovation?  

The insurance market is experiencing a lot of disruption. We’re seeing the application of new technologies and the creation of new business models turning centuries-old businesses on their heads. For established insurance and finance brands that take action, the insurtech boom offers a big opportunity. 

Mutually beneficial relationships with innovators can help corporations get ahead of competitors and stay relevant. Running an innovation lab is one of the fastest and most effective ways to form such collaborations as they operate an ‘open innovation’ model. To illustrate how this works in practice, let’s discuss Lloyd’s of London, the world’s leading marketplace for risk solutions with a 330-year history.

L Marks established the Lloyd’s Innovation Lab in 2018 and has guided over 80 entrepreneurial teams through our 10-week programme, where Lloyd’s stakeholders and startups work together to develop innovations. The chosen entrepreneurs are given access to the largest insurance market in the world to validate their idea. Meanwhile, Lloyd’s gets access to the latest innovations which tackle their most significant challenges and opportunities—everything from supply chain disruption to data, modelling, and claims handling.

The Lloyd’s lab has bought to market solutions which have aided the delivery of COVID-19 vaccines to low-income countries, helped measure the carbon footprint of customers, and created new products such as critical cloud cover and the world’s first IVF insurance product.

The structured innovation lab has helped Lloyd’s of London;

• Access specialised skills and knowledge that can be difficult to recruit for. 
• Learn how to approach innovation in a fast and agile manner. 
• Bring fresh perspectives, new ideas, technologies and approaches inside their business. 
• Partner with the best insurtech entrepreneurs disrupting the industry. 

Midwest Insurtech opportunities 

Here are some of the latest insurtech innovations developed in the Midwest. 

1. Predictive modelling to improve underwriting accuracy

Columbus-based car insurer Root Insurance has developed a predictive model using telematics data from over 10 billion miles of driving. The dataset covers granular metrics such as how hard you hit your breaks. Their model is reportedly ten times more predictive of driving behaviour than the industry standard allowing them to more accurately underwrite and personalise insurance policies for each customer. 

Root Insurance is only offered via a mobile app. Its streamlined mobile user experience and processes mean it takes just 47 seconds to sign up and around 3 minutes to file a claim. 

2. Smart devices driving data and rewards

Another Columbus-based innovator, Beam, developed a smart toothbrush that rewards good dental habits with wellness-related offers and cheaper insurance. Brush for two minutes and earn 10 points you can redeem via their app. Since their initial success, Beam has expanded to offer a portfolio of ancillary employee benefits.

3. Artificial Intelligence creating value from unstructured data

Over in Michigan, Groundspeed uses Artificial Intelligence and Machine Learning algorithms to convert unstructured loss runs, exposure schedules and policy documents into powerful insights. This is helping its users analyse trends and performance across multiple dimensions and identify profitable pools of risk.

Summary 

The Midwest offers perfect conditions for a burgeoning innovation hub with a ready talent supply and favourable economic conditions. The cluster of insurance giants is attracting innovative insurtech startups to the region, presenting an immense opportunity for players who seize it. 

Insurance giants should use a structured approach to collaborate with insurtech businesses, helping them to move faster than competitors or disruptive startups. Innovation labs offer a tried and tested method for building these partnerships. 

If you’d like to discuss how L Marks can run an Innovation Lab for your business, don’t hesitate to get in touch.