Money has been pouring into insurtechs, reaching a record of almost $2 billion in Q4 2019. Since 2018, investors have put more than $1 billion per quarter into companies seeking to shake up the industry. Not a single market segment has been untouched.
In 2020, the focus will be on innovating with insurtechs that enable incumbents. One report found that 96% of insurers said that they wanted to collaborate with insurtech firms in some way. Those surveyed favored partnerships and the software as a service (SaaS) approach to developing new solutions. There’s a rapidly growing list of insurer and insurtech partnerships.
Insurtechs are developing to solve niche problems, and most aren’t aiming to tackle every vertical or every phase of the process. We all know the saying, jack of all trades, master of none. Insurtechs are focused on being the master at very specific parts of the value chain. Allianz has partnered with Flock, an insurtech startup offering pay-per-flight drone insurance; Aviva partnered with Digital Risks in the U.K. to develop insurance for startups and small and medium-sized enterprises (SMEs); and State Farm partnered with Cambridge Mobile Telematics to deliver usage-based insurance to drivers in the U.S.
One big driver of these partnerships is the inability of one company to do everything at once. Synergies can be realized when combining complementary skills. In Germany, Generali formed a partnership with Nest to offer homeowners insurance that leverages Nest’s smart home technology. Nest’s technology detects smoke and carbon monoxide and sends alerts to customer’s phones, reducing the risk for the insurer. Nationwide’s partnership with sure.com allows it to sell renters insurance through an app; Nationwide is still handing the underwriting and policy management separately.
More and more, incumbents are working with several insurtechs that integrate to bring change to every aspect of the industry.
Insurtechs bring the speed, agility and technological skills that incumbents need.
As Deloitte’s 2020 Insurance Outlook pointed out, “Despite some attempts to upgrade legacy marketing and distribution systems… carriers continue to struggle to drive more effective connections with consumers accustomed to online shopping and self-service.” Trying to bring legacy systems into the current age of digitization simply isn’t working, and, if incumbents try to build in-house, they face a longer time to market and higher costs.
Partnering with an insurtech company allows incumbents to quickly bridge the innovation gap, where technology changes faster than their ability to keep up. The estimated timeframe to develop solutions in-house is around 18 months, whereas you can be up and running in as little as three months if you partner with an insurtech. Moreover, incumbents that partner can respond more quickly to changing customer demands and lessen their risk of losing market share to a competitor.
For their part, insurtechs have realized that seeking to disrupt and replace incumbents can be too costly. To run a successful insurance company, you need significant capital, which is difficult for startups to raise. The insurance industry is also regulation-heavy, making it difficult for newcomers to find a place. Startups struggle to access the complex networks that support insurers. The industry presents too many barriers to independent disruption, but partnership benefits everyone involved.
Insurers are ready to innovate and have the data and distribution networks to support large-scale rollouts. Insurtechs have the technology and the agility to come into a large organization in the midst of change, work with its legacy systems, partner with insurtechs solving other problems in the supply chain and provide immediate value in moving them into the digital world. Both sides of the equation are ready and willing to realize the benefits of working together.
Blockchain is poised to change the future of insurance by creating new insurance products, services and business models, as well as promoting new ways of improving control, measuring and pricing risk. It stands to enhance client engagement, while reducing costs, improving efficiency and ultimately expanding insurability.
One example of how blockchain can be applied to insurance is found in companies such as Ethereum, a decentralized platform that runs smart contracts. In this scenario, programmable logic can execute actions once pre-determined conditions are met. This all takes place without the intervention of a third party, providing insurers with the ability to digitize processes even further.
Insurance industry experts believe that blockchain could herald a new dawn to the industry by introducing improvements and efficiencies related to higher levels of accountability and transparency. Not only will it facilitate new digital currencies, but it may also be used to introduce new products to the insurance market, mitigate risks and fraudulent claims, lower costs, restructure back-office operations and provide easier and enhanced data access to both insurers and the insured.
An insurance report by Ernst & Young reveals that blockchain technology could become important in “detecting fraud and eliminating error and negligence by offering a devolved digital depository to help in verifying independently the legitimacy of policies and claims and, of course, customers.” Such a common platform, which offers a mutual record of truth, could assist insurance firms in saving a lot of time and money while improving operational efficiencies.
Studies reveal that fraud costs insurers in the U.S. and Europe alone an approximated $60 billion in annual losses. This is because 65% of these fraudulent claims often go unnoticed.
But this fraud may become a thing of the past with blockchain technology. This is because it is fraud-proof, indisputable and time-stamped and offers the highest security of identities, thereby offering help in minimizing and easily detecting insurance fraud and providing great value to the industry.
Even though blockchain technology is still embryonic, a number of established insurance firms have joined the bandwagon and are exploring the space. For instance, Shenzhen-based Ping An and Hong Kong-based AIA recently partnered with R3, a fast-growing blockchain group based in New York City.
The French bank Caisse des Dépôts recently rolled out a blockchain market initiative in partnership with a host of insurance companies such as AXA, Aviva, MAIF and CNP Assurances. The goal is to identify and encourage the development of opportunities for each of the partners by exploring these technologies.
As more and more of these technologies get up and running in the insurance industry, blockchain’s largely unexplored potential will begin to unfold. This trend, in particular, is set to have substantial impacts on the future of the insurance industry, but it will take time for them to be fully realized.
So far, there hasn’t been as much movement in North America, but that’s likely to change soon. If adoption and innovation with blockchain continues at its current rate, there’s no doubt that this technology will play a significant role in shaping the future of the industry sooner rather than later.
As we reach the end of 2017, the first full 12 months where insurtech has been recognized as a standalone investment segment, we wanted to reflect on what has been an incredible year.
From the start, we at Eos believed that insurtech would be driven globally, and that has certainly played out. This year, we’ve visited: Hong Kong, Amsterdam, New York, Las Vegas, Nigeria, Dubai, India, Singapore, Bermuda, Milan, St. Louis, Munich, Vienna, Paris, Zurich, Cologne, Chicago, San Francisco, Silicon Valley, Seattle and Toronto. We’ve expanded our geographic footprint to include the East and West coasts of the U.S. and India and have seen fantastic progress across our expanding portfolio. We’ve welcomed a number of new strategic partners, including Clickfox, ConVista and Dillon Kane Group, and launched our innovation center, EoSphere, with a focus on developing markets
At the start of the year, we published a series of articles looking at the key trends that we believed would influence insurtech and have incorporated these in our review of the year.
We hope you enjoy it! Comments, challenges and other perspectives, as always, would be greatly received.
2017: The year innovation became integral to the insurance sector
How are incumbents responding?
We are seeing a mixed response, but the direction of travel is hugely positive. A small number of top-tier players are embracing the opportunity and investing hundreds of millions, and many smaller incumbents with more modest budgets are opening up to innovation and driving an active agenda. The number sitting on the side lines, with a “wait and see” strategy is diminishing.
“If 2016 was the year when ‘some’ insurers started innovating, 2017 will be remembered as the year when ‘all’ insurers jumped on the bandwagon. And not a minute too soon! When I joined 3,800 insurance innovators in Las Vegas, we all realized that the industry is now moving forward at light speed, and the few remaining insurers who stay in the offline world risk falling behind.” Erik Abrahamson, CEO of Digital Fineprint
We are more convinced than ever that the insurance industry is at the start of an unprecedented period of change driven by technology that will result in a $1 trillion shift in value between those that embrace innovation and those that don’t.
Has anyone cracked the code yet? We don’t think so, but there are a small number of very impressive programs that will deliver huge benefits over the next two to three years to their organizations.
“We were pleased to see some of the hype surrounding insurtech die down in 2017. We’re now seeing a more considered reaction from (re)insurers. For example, there is less talk about the ‘Uber moment’ and more analysis of how technology can support execution of the corporate strategy. We have long argued that this is the right approach.” Chris Sandilands, partner at Oxbow Partners
Have insurers worked out how to work with startups? We think more work may be needed in this area….
“Investors are scrambling for a piece of China’s largest online-only insurer… the hype could be explained by the ‘stars’ behind ZhongAn and its offering. Its major shareholders — Ping An Insurance (Group) Co., Alibaba Group Holding Ltd., Tencent Holdings Ltd.” – ChinaGoAbroad.com
“Tencent Establishes Insurance Platform WeSure Through WeChat and QQ” – YiCai Global
“Amazon is coming for the insurance industry — should we be worried?” – Insurance Business Magazine
“Aviva turns digital in Hong Kong with Tencent deal” – Financial Times
“Quarter of customers willing to trust Facebook for insurance” – Insurance Business Magazine
“Chinese Tech Giant Baidu Is Launching a $1 Billion Fund with China Life” – Fortune
We are already well past the point of wondering whether tech giants like Google, Amazon, Facebook, Apple (GAFA) and Baidu, Alibaba, Tencent (BAT) are going to enter insurance. They are already here.
Notice the amount of activity being driven by the Chinese tech giants. Baidu, Alibaba and Tencent are transforming the market, and don’t expect them to stop at China.
The tech giants bring money, customer relationships, huge amounts of data and ability to interact with people at moments of truth and have distribution power that incumbents can only dream about. Is insurance a distraction to their core businesses? Perhaps — but they realize the potential in the assets that they have built. Regulatory complexity may drive a partnership approach, but we expect to see increasing levels of involvement from these players.
Role of developing markets
It’s been exciting to play an active role in the development of insurtech in developing markets. These markets are going to play a pivotal role in driving innovation in insurance and in many instances, will move ahead of more mature markets as a less constraining legacy environment allows companies to leapfrog to the most innovation solutions.
Importantly, new technologies will encourage financial inclusion and reduce under-insurance by lowering the cost of insurance, allowing more affordable coverage, extending distribution to reach those most at need (particularly through mobiles, where penetration rates are high) and launching tailored product solutions.
Interesting examples include unemployment insurance in Nigeria, policies for migrant workers in the Middle East, micro credit and health insurance in Kenya, a blockchain platform for markets in Asia and a mobile health platform in India.
Protection to prevention
At the heart of much of the technology-driven change and potential is the shift of insurance from a purely protection-based product to one that can help predict, mitigate or prevent negative events. This is possible with the ever-increasing amount of internal and external data being created and captured, but, more crucially, sophisticated artificial intelligence and machine learning tools that drive actionable insights from the data. In fact, insurers already own a vast amount of historical unstructured data, and we are seeing more companies unlocking value from this data through collaboration and partnerships with technology companies. Insurers are now starting to see data as a valuable asset.
The ability to understand specific risk characteristics in real time and monitor how they change over time rather than rely on historic and proxy information is now a reality in many areas, and this allows a proactive rather than reactive approach.
During 2017, we’ve been involved in this area in two very different product lines, life and health and marine insurance.
The convergence of life and health insurance and application of artificial intelligence combined with health tech and genomics is creating an opportunity to transform the life and health insurance market. We hope to see survival rates improving, tailored insurance solutions, an inclusion-based approach and reduced costs for insurers.
Marine insurance is also experiencing a shift due to technology
In the marine space, the ability to use available information from a multitude of sources to enhance underwriting, risk selection and pricing and drive active claims management practices is reshaping one of the oldest insurance lines. Concirrus, a U.K.-based startup, launched a marine analytics solution platform to spearhead this opportunity.
The emergence of the full stack digital insurer
Perhaps reflecting the challenges of working with incumbents, several companies have decided to launch a full-stack digital insurer.
We believe that this model can be successful if executed in the right way but remain convinced that a partnership-driven approach will generate the most impact in the sector in the short to medium term.
“A surprise for us has been the emergence of full-stack digital insurers. When Lemonade launched in 2016, the big story was that it had its own balance sheet. In 2017, we’ve seen a number of other digital insurers launch — Coya, One, Element, Ottonova in Germany, Alan in France, for example. Given the structure of U.K. distribution, we’re both surprised and not surprised that no full-stack digital insurers have launched in the U.K. (Gryphon appears to have branded itself a startup insurer, but we’ve not had confirmation of its business model).”– Chris Sandilands, partner, Oxbow Partners
Long term, what will a “full stack” insurer look like? We are already seeing players within the value chain striving to stay relevant, and startups challenging existing business models. Will the influence of tech giants and corporates in adjacent sectors change the insurance sector as we know it today?
Role of MGAs and intermediaries
Insurtech is threatening the role of the traditional broker in the value chain. Customers are able to connect directly, and the technology supports the gathering, analysis and exchange of high-quality information. Standard covers are increasingly data-driven, and the large reinsurers are taking advantage by going direct.
We expected to see disintermediation for simple covers, and this has started to happen. In addition, blockchain initiatives have been announced by companies like Maersk, Prudential and Allianz that will enable direct interaction between customers and insurers.
However, insurtech is not just bad news for brokers. In fact, we believe significant opportunities are being created by the emergence of technology and the associated volatility in the market place.
New risks, new products and new markets are being created, and the brokers are ideally placed to capitalize given their skills and capabilities. Furthermore, the rising rate environment represents an opportunity for leading brokers to demonstrate the value they can bring for more complex risks.
MGAs have always been a key part of the value chain, and we are now seeing the emergence of digital MGAs.
Digital MGAs are carving out new customer segments, channels and products. Traditional MGAs are digitizing their business models, while several new startups are testing new grounds. Four elements are coming together to create a perfect storm:
Continuing excess underwriting capacity, especially in the P&C markets, is galvanizing reinsurers to test direct models. Direct distribution of personal lines covers in motor and household is already pervasive in many markets. A recent example is Sywfft direct Home MGA with partnerships with six brokers. Direct MGA models for commercial lines risks in aviation, marine, construction and energy are also being tested and taking root.
Insurers and reinsurers are using balance sheet capital to provide back-stop to MGA startups. Startups like Laka are creating new models using excess of loss structures for personal lines products.
Digital platforms are permitting MGAs to go direct to customers.
New sources of data and machine learning are permitting MGAs to test new underwriting and claims capabilities and take on more balance sheet risk. Underwriting, and not distribution, is emerging as the core competency of MGAs.
Three of the trends driving innovation that we highlighted at the start of the year centered on the customer and how technology will allow insurers to connect with customers at the “moment of truth”:
Insurance will be bought, sold, underwritten and serviced in fundamentally different ways.
External data and contextual information will become increasingly important.
Just-in-time, need- and exposure-based protection through mobile will be available.
Over time, we expect the traditional approach to be replaced with a customer-centric view that will drive convergence of traditional product lines and a breakdown of silo organization structures. We’ve been working with Clickfox on bringing journey sciences to insurance, and significant benefits are being realized by those insurers supporting this fundamental change in approach.
Interesting ideas that were launched or gained traction this year include Kasko, which provides insurance at point of sale; Cytora, which enables analysis of internal and external data both structured and unstructured to support underwriting; and Neosurance, providing insurance coverage through push notifications at time of need.
As discussed above, we believe partnerships and alliances will be key to driving success. Relying purely on internal capabilities will not be enough.
“The fascinating element for me to witness is the genuine surprise by insurance companies that tech firms are interested in ‘their’ market. The positive element for me is the evolving discovery of pockets of value that can be addressed and the initial engagement that is received from insurers. It’s still also a surprise that insurers measure progress in years, not quarters, months or weeks.” – Andrew Yeoman, CEO of Concirrus
We highlighted three key drivers at the start of the year:
Ability to dynamically innovate will become the most important competitive advantage.
Optionality and degrees of freedom will be key.
Economies of skill and digital capabilities will matter more than economies of scale.
The move toward partnership built on the use of open platforms and APIs seen in fintech is now prevalent in insurance.
“We are getting, through our partnerships, access to the latest technology, a deeper understanding of the end customers and a closer engagement with them, and this enables us to continue to be able to better design insurance products to meet the evolving needs and expectations of the public.” Munich Re Digital Partners
Key trends to look out for in 2018
Established tech players in the insurance space becoming more active in acquiring or partnering with emerging solutions to augment their business models
Tech giants accelerating pace of innovation, with Chinese taking a particularly active role in AI applications
Acceleration of the trend from analogue to digital and digital to AI
Shift in focus to results rather than hype and to later-stage business models that can drive real impact
Valuation corrections with down rounds, consolidation and failures becoming more common as the sector matures
Continued growth of the digital MGA
Emergence of developing-market champions
Increasing focus on how innovation can be driven across all parts of the value chain and across product lines, including commercial lines
Insurers continuing to adapt their business models to improve their ability to partner effectively with startups — winners will start to emerge
“As we enter 2018, I think that we’ll see a compression of the value chain as the capital markets move ever closer to the risk itself and business models that syndicate the risk with the customer — active risk management is the new buzzword.” – Andrew Yeoman, CEO Concirrus
We’re excited to be at the heart of what will be an unprecedented period of change for the insurance industry.
A quick thank you to our partners and all those who have helped and supported us during 2017. We look forward to working and collaborating with you in 2018.
“Irresponsible”; “entitled”; “the gilded generation that never had it so good,.” It’s fair to say that society, in general, has a pretty dim view of the group of people currently aged between 18 and 34 – collectively known as millennials or Generation Y. Among the various criticisms leveled at the young professional cohort (immature, lazy, flippant — the list goes on), there is one theme that stands out. To quote a 2016 article from Ratesetter: “The YOLO generation is clueless about money.” (Disclosure – the authors of this article are both in their 20s.)
But is this criticism fair and accurate? We ask this question on the back of recent research from Aviva and others that suggests that the millennial generation might be more careful about what they spend their money on than they are given credit for. Perhaps surprisingly, the research showed that 50% of millennials categorized themselves as savers and that the average 18-to-34-year-old spends a great deal more time researching a purchase before clicking the Buy Now button than you might have thought.
This could be as a result of a number of things – the generation grew up amid one of the toughest recessions in living memory, are increasingly saddled with student debts and are facing the ever-increasing cost of housing. According to a study carried out by Aviva, millennials typically have just £156 left each month after basic living costs and repaying student loans. Regardless of fault or cause, the research seems to suggest that the average 18-to-34-year-old has less money to spend on, well, pretty much everything. Perhaps we have a case of “we’d love to save more — if we could.”
Notwithstanding all of the above, 70% of young people in the Aviva survey indicated that their main motivation for work was to be able to afford to travel. Pair this with that generation-transcending, young person’s mindset of “it’ll never happen to me”; one starts to realize why arranging adequate non-compulsory insurance cover does not appear very high on their lists!
However, with 16.2 million millennials in the U.K. alone, they now account for the largest generation in Western history, and this presents insurers with a great, significantly under-tapped market opportunity (we stop short of saying untapped, as some of the more innovative insurers have seen the light already).
The only slight problem (and it’s no secret) is that many insurers struggle to effectively engage with the young. Generation Y — technically savvy, independent, agile, synonymous with social media and the selfie — tend to be the polar opposite of most insurance companies. Unlike companies in many other industries, insurers don’t yet appear to have worked out the magic combination required to target, convert and retain business from the young — indeed, a recent Gallup web panel survey found that 69% of millennials said they are actively disengaged with or indifferent about their insurance provider.
Enter the insurtechs, which have come to the party with all manner of technological lotions and potions, and boy are they thriving. To paraphrase Sun-Tzu, “to engage your customer, you must think like your customer.” With a better understanding (and to a certain extent, empathy) of the common problems faced by Generation Y and how to solve them, and the ability to adapt quickly to changes without the hindrance of long decision-making processes and slow turnaround times, insurtech businesses are perfectly positioned not only to tap the gold mine themselves but to help the incumbents to do so, as well.
Spoiler alert: As much as we might hate to admit it, millennials are not known for their patience. In today’s world, where you can order food online in less than five minutes and book a holiday in just a few clicks, we want things now, and, where that isn’t possible, we want things quickly. As members of the rental economy, we are also averse to paying for something we aren’t using. The insurtech community has risen to the challenge and responded with the creation of no-fuss insurance policies, such as MetroMile, which allows you to pay for insurance for only the miles you drive, appealing to, among others, students at university who leave their cars at home while they study. On-demand protection is also the idea behind Trov, which enables users to simply turn on and off their insurance, in a few taps, as and when they need it. This shift in approach is something that is going to become more commonplace, with more solutions to insure a generation who view insurance as a luxury required as and when, not all the time.
So how do incumbent insurers compete in the increasingly digitized, by-the-minute economy? Beyond the creation of novel covers, it’s important for insurers to realize that millennials don’t want to be sold to — with so little disposable income, they want to feel as though they have made the buying decision themselves. Millennials want to feel connected to the product/service that they buy, and this starts during the purchasing journey.
Traditional sales methods are no longer effective in their own right. Insurance companies need to give their younger customers the tools to make purchasing insurance quick and personal — for example, by allowing them to autofill an online quote form using their social media data from Facebook or LinkedIn (with their permission), or by helping them to understand where they might be under- (or over-) covered. Here at Digital Fineprint, our focus is on helping the insurance community to disrupt itself from the inside out. We see ourselves as digital enablers, helping the oil tanker-esque behemoths to take on the mind of a jet ski. We firmly believe that if the major players lead from the front, adapting to the shift in the market and making the whole experience simpler and faster, all the while driving transparency between their customers and themselves, then we might just see millennials spending less time taking pictures of their food and more time getting covered!
Comments welcome – as long as they are 140 characters or less….
Concept: To sell insurance without asking applicants any questions.
Quote: “What’s our long-term goal? To go from Ask it Once to Ask it Never – so customers don’t have to answer any questions at all.”
Observation: How about a long-term goal of protecting individuals and families from catastrophic financial ruin? I just had my annual physical. My doctor said his new concept was to not ask me any questions and to get me in and out of his office in two to three minutes. That’s the kind of “customer experience” I want when my life is on the line. How about you?