The green fields, blue skies, pink clouds
When the insurance and technology get together, beautiful things happen. The insurance services used to be a black box having a long tail and a complex value chain where the customers barely understood what was offered to them. The insurance products are not very sexy either. However when the technology bought new spices into the soup, this space turned out to attract interest, money and talent. The technology and data analytics push insurance to become more customer focused and innovation centric. That is good news, at least for the consumer.
The sector has been open to innovation along its distribution channels, policies and claim management to create efficiencies and new business models since the interest rate environment got uncomfortable to carry high costs and the customer loyalties started to dry out. In early 2015, with the boom in Fintech space, Insurtech has also flourished. With infrastructure, access to data, use of sophisticated data analytics and machine learning available to create use cases, Insurtech start-ups have been refining new product innovation and customer journey, changing the underwriting processes, creating individualised and industry specific offers, enhancing transparency, reducing cost and service time by simplifying the procedures and offering personalised pricing.
According to CB Insights, in the second quarter in 2017, the Insurtech investments reached already 1 billion USD, which is 1,5 times higher than the same period in 2016. Especially the early stage investments reached a record high volume of approximately 350 million USD in Q2 representing 63% of all type of investments, meaning that new Insurtech seeds are popping up.
Since 2012, the total seed investments in Insurtech reached 1.7 billion USD, half of it in Property & Casualty and half in Life & Health insurance. The seed investments grew at a rate of 70% (CAGR) over 4 years, showing a fast and furious growth trend in that space. The incumbent insurers and re-insurers are heavily investing in Insurtech. To give a recent example, one of the brightest stars in the sky, Lemonade has been financed by Allianz and Allianz Ventures in 2017. In total 31 Insurtech investments in 2017 Q2 have been realized by insurers and reinsurers. Many of those companies launched dedicated venture-capital funds to invest in start-ups.
Lemonade is offering homeowners and renters insurance using sophisticated data analytics and AI. Founded in 2015, the firm received 60 million USD in 4 rounds from 10 investors. In health care insurance, Oscar, founded in 2013 attracted 730 million USD invested in 6 rounds from 17 investors, a start-up that disrupted the health care space while the affordable care act has been reformed in US. Metromile, a pay-per-mile car insurance company received 205 million USD investments in 6 rounds from 10 investors. The start-up has revolutionized the car insurance industry by offering affordable and transparent policies, priced based on the miles driven and instant digital diagnostics via car appliances.
In China, Insurtech is well integrated in the giant e-commerce economy. Zhong An, an Internet-based property insurance is founded by the chairman of Alibaba, Jack Ma and that of Tencent, Pony Ma and their counterpart Ping An Insurance in 2013. Backed by Morgan Stanley, CICC and CDH Investments, Shanghai based start-up, Zhong An received 940 million USD of investment in 2015 from these 3 investors in a single round. The Chinese online insurer largely focusing in blockchain and AI won in September 2017 the HK approval for a planned 1 billion plus USD IPO. Not bad …
The Insurtech start-ups take new initiatives to provide new products based on data analytics and telematics connecting car, house and personal technologies. Many Fintech start-ups partner with carriers to act as an insurance broker. For that purpose, the social lender SoFi and Protective Life Insurance Co partnered in 2016, the challenger bank N26 and Clark launched fully digitized insurance services in 2017.
Not only large incumbents, also specialist insurers look for opportunities to integrate technology and data analytics in their business models.
Insurtechs offer products and services more relevant to today’s generations and will likely to scale fast prior to the next big wave, which will certainly be the time for consolidations, IPOs, blue skies and pink clouds.
